NJCPA Jan/Feb 2012

The New Economics of Divorce in New Jersey

Essential Elements for Successful Divorce Practice Management

The Case of Vine v. Vine

The Joint Appraiser’s Role in a Divorce Action

M a g a z i n e o f t h e N ew J e r s e y S o c i e t y o f C e r t i f i e d P u b l i c A c c o u n t a n t s J a n • F e b 2 0 1 2

4 Close Up Visit the NJSCPA Member Benefits Marketplace for Your One-Stop Shopping

6 News Briefs 18 A&A Buzz Proposed Changes for the Treatment of Investment Companies and Property

20 Best Practices Employees Managing Their Own Health Care

22 Financial Planning The Value of a Fiduciary

23 Forensic File The CPA and the Prenuptial Agreement 24 Industry Insights Selecting an Inventory Costing and Valuation Method

26 Small/Sole Practitioner Securing Documents in a Hostile Environment

28 Tax Talk Filing for Innocent Spouse Relief

30 Tech Center A Look at e-Discovery

40 Student Outlook An Important Notice for CPA Exam Candidates

41 Legislative Views What You Need to Know About New York’s Mobility Law

42 Staff Profile We’re Glad She Gave It a Chance

Society Pages CPE Offerings and Events, 32 Member Benefits, 32 Get Involved, 34 NJ State Board of Accountancy Report, 38 Classifieds, 39The New Jersey Society

of Certified Public Accountants425 Eagle Rock Avenue Suite 100Roseland, NJ 07068-1723973-226-4494 Fax: 973-226-7425njscpa.org

f e a t u r e sRalph Albert Thomas Executive Director [email protected]

Ellen C. McSherryAssociate Executive [email protected]

Don MeyerDirector, Communications & [email protected]

David PlaskowManaging [email protected]

Jeanette L. Miller Editorial [email protected]

Editorial Advisory BoardNeil B. Becourtney, CPADavid M. Capodanno, CPARosemary F. Ervin, CPARebecca B. Fitzhugh, CPAChristopher W. Frey, CPACatherine Z. Horn, CPABernard M. Kiely, CPAMarcella LoCastro, CPAAnthony F. Marone, CPAWilliam C. McNamara, CPAMarc D. Mintz, CPAJohn F. Raspante, CPAJoseph F. Scutellaro, CPAMargaret Van Brunt, CPA

The Warren GroupDesign / Production / [email protected]

8 The New Economics of Divorce in New Jersey Discover how divorce has changed in NJ since 2008, thanks to the recession, and the part CPAs play.

12 Essential Elements for Successful Divorce Practice Management

See what it takes to successfully obtain the optimum outcome for clients and receive timely payment for services.

14 The Case of Vine v. Vine Learn the role of a CPA expert during the valuation of a NJ surgical practice during a divorce.

16 The Joint Appraiser’s Role in a Divorce Action

Find out how a joint appraiser can help all parties involved in a divorce case and the opportunities for CPAs.

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue-Suite 100, Roseland, NJ 07068. Issue No. 31 Copyright © 2012 New Jersey Society of Certified Public Accountants. Annual membership dues includes $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues.

Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723.

The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.

J a n u a r y • F e b r u a r y 2 0 1 2

4N E W J E R S E Y C P A • J A N U A R Y • F E B R U A R Y 2 0 1 2

CLOSE u p

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2011/12 Board of Trustees

EXECUTIVE COMMITTEEPresidentCarole A. Hedinger, CPAPresident-ElectThomas F. Roche III, CPASecretaryLloyd F. George, CPATreasurerWalter J. Brasch, CPAImmediate Past PresidentRobert S. Marrone, CPAExecutive DirectorRalph Albert Thomas

TRUSTEESLewis D. Bivona, CPAJose E. Bombino, CPASusan Burke, CPARebecca B. Fitzhugh, CPALinda Gibson, CPAEdward I. Guttenplan, CPAKarl A. Halteman, CPAMaryann Holloway, CPARobert Nanfro, CPAKenneth Pogrob, CPAJody Rorick, CPAMary E. Zago, CPA

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NEWS b r i e f s


FASB Issues Accounting Standards Update to Simplify Testing Goodwill for ImpairmentThe Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which simplifies how an entity tests goodwill for impairment.

The amendments contained in the update are intended to address concerns expressed by private companies about the cost and complexity of the goodwill impairment test. The amendments allow both public and nonpublic entities an option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under that option, an entity no longer would be required to calculate the fair value of a reporting unit unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance also includes examples of the types of events and circumstances to consider in conducting the qualitative assessment.

The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.

IRS Launches Voluntary Worker Classification Settlement ProgramThe new Voluntary Classification Settlement Program is designed to increase tax compliance and reduce the burden for employers by providing greater certainty for

employers, workers and the government. Eligible employers can obtain substantial relief from past federal payroll taxes if they prospectively treat workers as employees. An applicant must consistently have treated the workers in the past as nonemployees, filed all required Forms 1099 for the workers for the previous three years and not currently be under a classification audit of these workers.

Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. See Form 8952, Application for Voluntary Classification Settlement Program, and Announcement 2011-64 on irs.gov.

IRS Releases Registered Tax Return Preparer Test Specifications The Internal Revenue Service (IRS) announced the competency test specifications individuals must pass to become a Registered Tax Return Preparer. The Registered Tax Return Preparer designation also requires a background check and tax compliance check, as well as 15 hours of continuing education annually.

Although individuals who already have a provisional preparer tax identification number (PTIN) from the IRS do not have to pass the exam until December 31, 2013, they may take the exam at any time once it is available. The test must be taken at one of the roughly 260 Prometric facilities nationwide.

The test fee is expected to be between $100 and $125, which is separate from the

PTIN user fee. Currently, there is no limit on the number of times preparers can take the test, but they must pay the fee each time. Individuals must pass the test only once.

CPAs, attorneys and enrolled agents (EAs) are exempt from testing and continuing education. Also exempt are supervised employees of attorneys, CPAs, or EAs who prepare, but do not sign, and are not required to sign the Form 1040 series returns they prepare and individuals who prepare federal returns other than the Form 1040 series. The IRS will notify those preparers who have a testing requirement.

IRS Offers Filing Relief for 2010 EstatesEstates in 2010 that requested an extension on Form 4768 will have until March 2012 to file their estate tax returns and pay any estate tax due. Normally, a six-month filing extension is automatically granted to estates filing this form, but extensions of time to pay are granted only for good cause. As a result, most 2010 estates that timely file Form 4768 will have until March 19, 2012, to file Form 706 or Form 706-NA. For estates of those who died in late 2010 (after December 16, 2010, and before January 1, 2011), the due date is 15 months after the date of death. No late-filing or late-payment penalties will be due, though interest still will be charged on any estate tax paid after the original due date.

IRS Shows Continued Progress on International Tax EvasionThe IRS continues to make strong progress in combating international tax evasion, with new details announced showing the recently completed offshore program pushed the total number of voluntary disclosures up to 30,000 since 2009. In all, 12,000 new applications came in from the 2011 offshore program which closed in September.

The IRS also announced it has collected $2.2 billion so far from people who participated in the 2009 program, reflecting closures of about 80 percent of the cases from the initial offshore program. The IRS has collected an additional $500 million in taxes and interest as down payments for the 2011 program.

New Jersey by the Numbers

7,000,000,000 Dollar damage to New Jersey from Hurricane Irene

7,000,000 Annual dollar cost for MetLife for the naming rights to the Jets/Giants stadium

30,000 Number of NJ public sector jobs shed during the Christie administration

25 Number of years of the MetLife deal for the Jets/Giants stadium

1 New Jersey’s rank as lowest divorce state in the nation

N E W J E R S E Y C P A • J A N U A R Y • F E B R U A R Y 2 0 1 2

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The IRS noted progress on multiple fronts, including international tax agreements and increased cooperation with other governments. In addition, the IRS and Justice Department have increased efforts involving criminal investigation of international tax evasion.

SEC Forms Small and Emerging Companies Advisory CommitteeThe Securities and Exchange Commission (SEC) announced the formation of the Advisory Committee on Small and Emerging Companies to focus on interests and priorities of small businesses and smaller public companies. The committee is intended to provide a formal mechanism through which the SEC can receive advice and recommendations specifically related to privately held small businesses and publicly traded companies with less than $250 million in public market capitalization.

The advisory committee will advise and consult with the SEC on such issues as capital raising through private placements and public securities offerings, trading in

the securities of small and emerging and small publicly traded companies and public reporting requirements of such companies.

PCAOB Publishes Practice Alert on Emerging MarketsThe Public Company Accounting Oversight Board (PCAOB) published Staff Audit Practice Alert No. 8: Audit Risks in Certain Emerging Markets, which focuses on the risks of misstatement due to fraud that auditors might encounter in audits of companies with operations in emerging markets, auditors’ responsibilities for addressing those risks and certain other auditor responsibilities under PCAOB auditing standards.

The PCAOB has observed some conditions and situations in certain companies in emerging markets that indicate to auditors a heightened fraud risk, including discrepancies between a company’s financial records and audit evidence obtained from third parties; auditor difficulties in confirming cash and receivable balances; and the recognition of revenue from contracts or customers whose existence cannot be corroborated.

The Results Are InMany thanks to the 1,265 people who took part in the recent survey of New Jersey CPA magazine. The last reader survey took place in 2008, and the results just keep getting better:•The percent of people rating the magazine

as a member benefit as “good” or “excellent” went from 87 percent in 2008 to 89 percent.

•The number of people who indicated they “read it from cover to cover” went from 8 percent to 11 percent.

•The number of people who rated the content categories of accuracy, quality, design, maneuverability and timeliness as “excellent” increased by an average of 8 percent.

“I enjoy reading New Jersey CPA magazine and hope it continues to produce excellent articles,” said one respondent. We will, but we’ll also use the information you provided to make the publication even better. So, thanks again and keep on reading!

njscpa.org Spotlight

What’s Up with Those Funny Little Boxes of Bars and Squares?

Quick Response (QR) codes seem to be popping up everywhere these days, and the New Jersey Society of CPAs is starting to integrate them into member communications.

What is a QR code?A QR code is an encoded barcode image resembling a square maze. It stores information that can be scanned either vertically or horizontally to be decoded. Once the barcode image is created, it can be printed on nearly any surface and location, and can be used for many different functions, including product/service information and customer service.

Why is the NJSCPA using QR codes?They are a quick and easy way to send hyperlinks and electronic information to mobile device and smartphone users.

How can I get my mobile device to read them?1. Download and install a free QR code

reader – Go to your mobile device’s app store and search for “QR Code Reader.” (For a list of commonly used apps, visit qrstuff.com/qr_phone_software.html.)

2. Open the QR code reader app.3. Scan the QR code – Use your device’s

camera to take a picture of the QR code.4. Follow the link – The QR reader app will

display a link to the information in the QR code.

Try it out by scanning the QR code below. You’ll be taken to a webpage about the NJSCPA’s mobile app and can download the app while you’re there.


More than 30 years ago, Census data indicated that nearly 50 percent of first marriages ended in divorce, and today this basic statistic still holds true. In 2003, New Jersey ranked as the 16th lowest state for number of divorces. The real estate market was strong and home values were high; retirement plans and stock investments were still generally strong. Most importantly, employment was robust. In 2003, the unemployment rate was less than half of what it is today. People had more discretionary income to spend and, accordingly, had the financial means to get divorced. Despite the emotional woes and concerns of divorce, people still had economic confidence and a sense of economic security and

stability. This stability allowed them to make necessary, but difficult, financial decisions.

The New Jersey DivorceDivorces trigger property distribution of the marital estate and income distribution (i.e., alimony). In New Jersey, there are a dozen factors that are considered for spousal support (alimony). Half of these factors are not substantially impacted by location or economic cycles:•Marriagelength.•Ageandhealthofeachparty.•Parentalroleofeachparty.•Timeandexpensetoacquiresufficient

education or training to become self-supporting.

•Consequencestobothparties.•Factorsthatthecourtdeemsrelevant

(New Jersey Statutes, Title 2A, Chapters: 34-23).

The following factors can be impacted by geographic location and the economy:•Actualneedsandabilityofapartyto

pay alimony.•Standardoflivingestablishedduring

the marriage.•Earningcapacitiesoftheparties,

education level, job training and skills.•Lengthofabsencefromthe

There are several differences to focus on between

divorce New Jersey-style as it existed prior to 2008,

versus how it exists now and for the foreseeable future.

One of these is the matter of what the practitioner,

whether he or she is a forensic accountant who

specializes in divorce or is a traditional accountant,

must provide in professional advice to clients who are

going through the process.

The New Economics ofDivorce in New Jersey

By Randall M. Paulikens, CPA, and Ronald Markovich

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job market of the party seeking maintenance.

•Propertyaward.•Income-producingassets(e.g.,rental

real estate).

The economy obviously plays a potentially significant role in many oftheselatterfactors.Forexample,the ability to be gainfully employed

and thus establish a standard of living depends greatly on the current state of the employment market. Even if the standard of living itself is not in dispute, the ability to continue that standard may be significantly impacted. The job or position may simply be eliminated on a temporary, long-term or permanent basis. Some of these issues were not as prevalent pre-2008

as they are today. The prior economic situation allowed various customs for income and asset splitting to take hold and become part of what was, and to an extent still is, in New Jersey divorce cases.

Post-2008 and Future ExpectationsAs the economy started its decline in

See The Good.At the Community Foundation of New Jersey, we’re focused on helping our donors use their donor advised funds to create real impact in their communities and see the good their charitable giving creates.

Here are two recent examples of innovative ways our donors are using their funds to make a difference:

• Donor Fund Helps Special Needs Adults Find Work. Employment Horizons is a non-profi t organization that provides job counseling and placement to special needs adults. Through a grant from a donor’s fund, the organization now has been able to place more special needs adults in jobs by expanding staffi ng services and underwriting the costs of drivers and career coaches. Now, these adults are able to not only obtain employment, they’re able to keep it.

• Operation Ceasefi re in New Jersey. The crime problems in Newark are well known. While there has been some progress, it’s clear further improvements will require new solutions. A recent grant by CFNJ helped to bring a successful nationally tested model to reduce gang violence called “Operation Ceasefi re” to Newark.

If your clients are looking to make a difference through charitable giving, we’d like to be of assistance. Please contact Hans Dekker at [email protected] | 973-267-5533.

2011 Year-To-Date (Nov):Grants Issued - $23.5MM | Gifts to Donor Advised Funds - $32MM

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24946_CFNJ_NJCPA_4p875x4p895-NOV11.indd 1 12/8/11 5:06 PM

2007, the number of divorces in New Jersey also started to decline. By 2008, New Jersey had the second-lowest divorce rate in the country. After 2008, the divorce rate has been declining at an even greater rate as the recession took its toll on family finances. New Jersey’s economy suffered due to its proximity to the financial services sector. The number of new divorce cases filed in New Jersey during the first six months of 2009 fell by 9 percent, compared to the same period in 2008. People are choosing to stay together until prices of real estate and stock portfolios rebound. Despite a belief held by many family law attorneys that there will be an increase in divorces as the economy recovers, there has not yet been a significant increase in cases filed.

In the past, divorces were caused by numerous factors, such as financial disputes, adultery and children-related matters. Couples who typically rely on salaries may endure excess stress as a result of a layoff. Even if a divorcing spouse has a job, the fact that he or she may lose a job can impact the decision-making process. Previously, the consequencesforstressweremaritaldissolution. Paradoxically, financial

stress caused by one or both spouses losing a job may be the reason the couple remains together. Simply put, the couple may not be able to afford to live apart as well as pay professional fees coincident with divorce.

The Role of the AccountantAccountants should expect to tell their clients the plain truth: It will take years torecoverequityinthehome,thejobmay never come back, a lifestyle funded with debt cannot continue and so on. Accountants deal with economic reality daily. They should communicate to their clients honestly and openly, since clients may not know or be willing to admit certain things. Avoiding certain truths does not make these realities go away.

CPAs can help a divorcing couple conserve what likely may be fewer assets than either spouse wants to acknowledge. This is the time for the CPA to educate both parties as to the actual financial picture. Most often, neither spouse understands the entire picture.Forexample,onespousetypically is aware of the big ticket items, such as the mortgage and car payments, but has no idea how much

food and school activities cost.

As we look forward to 2012 and beyond, the economy does not appear to be rebounding anytime soon. With a weak economy and growing costs, couples will be forced to remain unhappily married just to survive. Perhaps the saying “in good times and bad” has more meaning than ever.

Randall M. Paulikens, CPA, ABV, CFF, CITP, is a partner and the director of the litigation/law firm/valuation service group at WithumSmith+Brown. He is a member of the New Jersey Society of CPAs Business Valuation Forensic Litigation Services Interest Group. Ronald Markovich is a senior accountant at WithumSmith+Brown. Contact the authors at 201-265-2800.


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Accountants involved in it are on a singular plane in the profession, where specialqualifications,experienceand,perhaps,temperamentarerequired.Divorce work is rewarding because it helps clients get through bad times, yet difficult because many simply don’t like to pay for it.

A Select GroupForalloftheaforementionedreasons, there are a limited number of CPAs who practice exclusively or are considered experts in divorce. According to the New Jersey Society of CPAs, of its approximately 15,500 members, 13 percent note divorce as an area of interest in their profiles, and no more than 1 percent typically belong to the relevant practice interest

group or actively market their service expertise.

What It TakesAs one of this select group who has spent the last 20 of my 35 years as a CPA focused almost entirely on the divorce sector, I can assert that three essential elements for successful divorce practice management are (1) retainingqualifiedprofessionals;(2)formulating precise engagement letters; and (3) implementing effective internal controls.

Retaining Qualified ProfessionalsThe competency of the accountants comprising divorce litigation teams is vital to a practice. Unlike typical accounting work, the skills and education necessary for basic function – let alone success – in the divorce sectorareacquiredfromon-the-jobexperience. Accountants will routinely interact and must effectively deal with several important constituencies: clients, attorneys, judges and court personnel – some of whom will questionanddemandsubstantiationof every report and decision. These professionals must not only be knowledgeable and detail oriented, butalsoquickthinkingandconfident.Divorce accountants must be prepared to, and often do, testify in court as to their findings and decisions. Indeed, the level of scrutiny to which divorce casework is subject bears

Divorce practice within the public accounting

profession is a highly specialized and challenging

field that is, in many ways, inconsistent with the

typical activities in which most CPAs are trained,

experienced or interested. Divorce practice is a

dynamic and subjective business where every client

is nonrecurring, every engagement is special, every

fact is scrutinized, every facet is permeated by the

legal and judicial systems, and every decision is of

consequencetomany.

By R. Joseph Gunteski, CPACowan, Gunteski & Co., P.A.

Essential Elements for Successful Divorce

Practice Management

no comparison to that for standard accounting work, where audits or tax returns are rarely officially examined.

Because most divorce practices tend to originate and remain as an ancillary service to business valuation and forensic accounting, initial professional experience and credentials are usually obtained in these areas. It is extremely beneficial for accountants to achieve Accreditation in Business Valuation (ABV) or become Certified inFinancialForensics(CFF)oraCertified Valuation Analyst (CVA) to enhance knowledge and expertise in pertinent areas like business valuation, cash-flow and lifestyle analyses, and forensic accounting. Some CPAs become expert courtroom witnesses or involved in Alternative Dispute Resolution (ADR) as professional mediators and arbitrators, all practical and worthwhile endeavors. Along with tax and accounting skills, CPAs in divorce practice must have interest in and knowledge of statutes and regulations pertaining to family and civil laws. They should participate in or even teach applicable continuing legal education programs.

Formulating Precise Engagement LettersIn divorce cases, accountants may be appointed by the courts, hired by either spouse or jointly retained by both spouses. Who actually retains you does not influence the casework or outcome because of the intense scrutiny of the reports in the case. What does matter to a divorce practice is that these are all one-time, nonrecurring, special engagements and non-repeat business. Unlike regular accounting or tax clients, there are no previous or continuing relationships with divorce clients. Although it is possible to encounter a rich, satisfied, serial divorcé, most divorce clients are none of these.

Therefore, it is absolutely essential to formulate precise and concise engagement letters for client signature, specifying the service(s) to be performed, work product expected and who is responsible for payment. It is important to state upfront the amount of the retaining fee, the

party responsible for its payment and the expected timing and source of payments for ongoing balances, including the final balance when the case is resolved. Billing and collection problems tend to lessen when these matters are clearly addressed in a three- or four-page engagement letter and when effective internal case management is present.

Implementing Effective Internal ControlsAccording to some best practice measures, and in stark contrast to most accounting work, the average length of a divorce case is one year. Case calendars – the schedules for discovery, meetings and due dates to which divorce litigation team members are subject – are controlled by judges and attorneys. These schedules can become chaotic, with conflicts, changes and crises routinely encountered. Discovery, the gathering and analyzing of files and documents on which much of an accountant’s time is spent, often becomes a prolonged, messy, expensive process, reliant on repeated pleas to attorneys, banks, judges, credit card companies and the like to keep the case moving and responsibilities on track.

Although such factors make it difficult, it is imperative that accountants take charge of their cases through internal control sheets that outline regular internal review of the case calendar, pertinent due dates, work-in-progress and all reports. Such a system is advantageous in planning personnel and engagement schedules, enabling accurate and timely billing, and fostering teamwork. The administrative staff plays a vital role in internal control and case management.

By implementing the above elements for successful practice management, CPAs involved in the highly specialized and ever-challenging divorce sector will advance – in a professional and timely manner – their goals of achieving fair andequitableresolutionsforclientsand “paid in full” stamped on their divorce case invoices.

R. Joseph Gunteski, CPA, CFF, is the vice president and shareholder-in-charge of the litigation & valuation services group at Cowan, Gunteski & Co., P.A. He is a member of the New Jersey Society of CPAs. Contact him at [email protected] or 732-349-6880.


13


Reasonable CompensationReasonable compensation is often the biggest single adjustment that forensic accountants make to the reported figures in order to arrive at normalized income. Both experts used the same data source. As the spouse’s expert, I used the median – the argument being that the data source from which the information was being taken assumed a certain competency and operational level for the doctors to which the subject was being compared. Thus, using the median reasonably took into account whatever skill set and business needs were

appropriate and that the excess, if any (and there was substantial excess), was attributable to the superior profitability and goodwill of the practice.

The doctor’s expert used the 75th percentile, which meant a considerably higher reasonable compensation level which resulted in lower economic income and a lower value. His argument was that this doctor was essentially a “star” and entitled to compensation superior to the median because of his practice’s profitability. I countered that such logic would essentially mean that the practice’s value was being reduced for being successful.

Capitalization RateIn developing the capitalization rate, I included the industry-specific premium, in this case a negative, reducing the cap rate by approximately 5 percentage points. The doctor’s expert did not use the same, indicating the use of the industry-specific number was inappropriate because the companies used by Ibbotson/Morningstar were typically billion-dollar companies and, thus, not appropriate for comparison to a solo physician’s surgical practice.

I countered that it was not a matter of business size, but rather the issue of economic forces operating in the medical profession, which were essentially the same regardless of size.

I cannot emphasize enough the importance of being consistent in how you perform your work. We, as financial experts, are held to a high standard and

The Vine v. Vine case involved determining the

income and value of a one-doctor surgical practice

in New Jersey for a divorce that went to trial with

a number of substantial issues. My role was as an

expert on behalf of one of the spouses. Experts

for both parties were capable and experienced

professionals who were far apart on their valuation

conclusions. Those who practice, or aspire to practice,

in the forensic accounting/business valuation arena

will find this a useful case study and very relevant to

the practical aspects of what is involved in the work

forensic accountants do.

By Kalman A. Barson, CPAThe Barson Group

The Case of Vine v. Vine

are expected to be consistent in applying various processes. The doctor’s expert – in response to my use of the industry-specific premium – labeled the use of the same as lacking common sense. Upon cross-examination, that expert was asked if he had ever used the industry-specific information for a medical practice before. The doctor’s expert emphatically and repeatedly stated that he had never done so. You can imagine that expert’s embarrassment when the spouse’s attorney presented him with a copy of a report that he had authored only a couple of years earlier where he had used the industry-specific information for a solo medical practice.

Non-Operating Asset This medical practice had hundreds of thousands of dollars in a bank accountwhichwere,withoutquestion,far in excess of operational needs. I concluded that a substantial portion of those funds were non-operational and, thus, in addition to any value that was determined using an income approach.

I used 30 days operational expenses, exclusive of reasonable compensation to the doctor, as the amount of cash needed for the practice. The doctor’s expert used a considerably lesser degree of excess cash: 90 days of operational expenses, inclusive of reasonable compensation for the doctor. I argued that with the practice’s level of accounts receivable, and with it collecting funds on a recurring and constant basis, 30 days wasmorethanample.Furthermore,itwas appropriate to calculate the same exclusive of compensation to the doctor because the doctor, as a business owner, was in a financial position to forgo salary for some time if cash flow called for such action. The doctor’s expert argued that 90 days was necessary for prudent fiscal operations and that the doctor should be treated as any other employee and his salary be allowed as an operating expense.

ForensicsEven though this would normally have been the first item to present in this type of a case study, here it was a relatively minor issue. One interesting item was that the practice’s tax returns included several thousand dollars a year for

home-office expenses. I added those back as not being real operating expenses. The doctor’s expert accepted the tax returns in this regard, arguing at trial that these were legitimate expenses permitted by the Internal Revenue Service and that the doctor did work at home. (The spouse testified that the doctor did not.)

OutcomeAs often happens in these matters, the judge accepted parts of each expert’s report and arrived at a blended decision.

Clearly, the positions one takes need to be well founded and he or she needs to be ready to argue strongly the strength of his or her analysis. The determination of reasonable compensation and capitalization rate cannot be done in cookie-cutter fashion,

but need to be addressed on a specific case-by-case basis.

As for forensics, even a small item, in this case the home-office expense, should not be ignored in the sense that if not handled correctly, it may give the judge an impression of overreach, an inattentiveness to detail and perhaps a cavalier attitude.

Kalman A. Barson, CPA, ABV, CFE, CFF, is the founder of The Barson Group, which specializes in litigation support services. He is a frequent lecturer and the author of several books on investigative accounting, such as Divorce – The Accountant as FinancialExpert. He is a member of the New Jersey Society of CPAs Business Valuation Forensic Litigation Services Interest Group. Contact him at [email protected] or 908-203-9800.


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Consider, for instance, that without a joint appraisal, many non-business-owning spouses or those without direct access to marital funds would not be able to afford any expert in the case. In addition to the added financial benefit of retaining a joint expert:•Theevaluatorisalsolikelytoget

better access to documents and other evidence than an expert who has been retained by one party or another.

•Theevaluatorcanoftentakeonthe role of creative problem solver, coming up with financially efficient, resourceful solutions.

•Thepartiesandtheirattorneysfrequentlyviewthejointappraiserasmore independent and objective, and can use the joint expert to expedite mediation and settlement.

Attorneys avoid any pitfalls by

clearly explaining to their clients the differences between retaining a sole expert and a joint expert. This will help clients from feeling “betrayed” later on in the case – when, for example, the appraiser may spend more time with the business-owning spouse to obtain information and financial records; or when the appraiser’s opinions conflict with the owner’s perception of the business’ value.

It is important for the legal practitionertobecomeacquaintednot only with appraisers who have experience as joint experts, but also those who also have some mediation or alternative dispute resolution training, as they may prove to be the most efficient joint experts.

The emerging field of collaborative law in many jurisdictions also utilizes the joint expert process. Many mediators/arbitrators are taking advantage of the joint appraisers as well, to reduce the conflict and cost of divorce cases.

The joint appraiser is particularly suited to smaller cases that concern sole proprietorships or family-owned businesses, when two experts would most likely reach similar conclusions of value. Parties in the smaller cases will not often have the funds to hire specialists or consultants and, conversely, where the parties do have

In these economically challenging times, parties are

increasingly seeking ways to reduce the cost and

conflict of divorce. Many attempt to streamline the

process by retaining a joint expert/valuator to appraise

the marital business and/or business interests. Indeed,

there are numerous benefits.

By Mark S. Gottlieb, CPAMark S. Gottlieb, CPA, P.C.

The Joint Appraiser’s Role in a

Divorce Action


17

such funds, a joint expert may not work to their advantage. Once the parties have decided to take this route, it is important to work toward creating a framework for the engagement by taking steps to: •Definethescopeoftheengagement

and determine whether the expert will provide ancillary services, such as forensic investigation, income determination and accounting for separate property.

•Establishaprotocolforcommunications between the expert and counsel, and the expert and the parties.

•Establishaprotocolforcommunications between the expert and the court.

•Establishaprotocolforcommunications between the expert and any consultant, specialist or rebuttal expert that the parties may hire.

•Establishatimelineandprocedurefor the document production process, especially who will provide the documents and what they will provide.

•Provideamethodologytoenforcethe cooperation of the parties and a means of recourse for the expert ifrequestedinformationisnotforthcoming.

•Discussanddefinetheapplicablestandard of value.

•Instituteaprocedureforprovidingdraft reports and receiving comments from attorneys and the parties.

•Determinetheformatofthefinalwork product and whether the expert will provide a summary or detailed report.

•Establishaproceduretocompensatethe expert, including the amount of a retainer, and his/her recourse for delinquentpayments.

There are, of course, common problems in divorce cases. Just because the parties have retained a joint expert does not immune the process, or the appraiser, from the same challenges that can frustrate any divorce proceeding. Investing the effort to establish a framework for the engagement can reduce these frustrations. In addition, if the attorneys and both spouses support the retention of a joint appraiser, they will have more confidence in the process.

Mark S. Gottlieb, CPA, ABV, CFF, CVA, M.S.T., manages the business valuation and litigation support group at Mark S. Gottlieb, CPA, P.C. He is a member of the American Institute of CPAs and the New York State Society of CPAs. Visit msgcpa.com.


InOctober2011,theFinancialAccountingStandardsBoard(FASB)

issued a pair of exposure drafts, one of which amends existing guidance around investment companies (ICs), and the other which introduces a new generally accepted accounting principles (GAAP) paradigm, the investment property entity (IPE).

Investment CompaniesThe IC paradigm is a subset of GAAP

which, in the pre-codification era, was most well known by practitioners through the AICPA Audit and Accounting Guide for Investment Companies. Under this guide, ICs generally are those that:•Raisecapitalfrom(mostlypassive)

investors.•Investforcurrentincomeand/or

capital appreciation.•Donotoperateanyongoing

businesses.•Arenotrealestateinvestmenttrusts

(REITs).

Based on the guidance promulgated under the guide, entities determined to be ICs reported under a different GAAP paradigm than other entities. The major differences included reporting all investments at fair value, with changes in fair value recognized in earnings; only consolidating other 100-percent-owned ICs and not following other consolidation guidance; and specialized financial statement presentation and disclosure items.

Diversity in PracticeThe guide provided a definition for ICs that allowed for a large degree of practice diversity. Most hedge funds and registered investment companies reported under the guide, but the IC guidance was also applied to private equityfundsandrealestateinvestmentvehicles. Not only did this result in drastically different accounting for real estate investments (those held by REITs and by similar, non-REIT entities), but it also impacted the comparability of accounting for similar investment vehicles, particularly with respect to consolidations. This diversity

has continued over the past several years,promptingtheFASBtoissuetherecent guidance.

Redefining the Investment CompanyTherecentFASBguidanceattemptstofurther clarify the definition of an IC with the goal of reducing some of the diversity in applying current guidance. Notably, the proposed guidance will:•RequirethatICshavemultiple

investors and make multiple investments.

•DiscontinuetheREITexemption,subjecting them to IC accounting.

•AmendtheconsolidationrulessuchthatICsarerequiredtoconsolidateonly other ICs or IPEs in which they hold a controlling financial interest.

These amendments will significantly impact how entities consider the application of IC accounting. Many which currently do not report as ICs (notably REITs) may fall under the new guidance. Similarly, some entities that are considered ICs may no longer meet the revised criteria. Since ICs have been free of traditional consolidation accounting, this could be the first time they have to consider whether they hold a controlling financial interest in a subsidiary.

Investment Property EntitiesTheFASBalsoissuedanexposuredraft introducing a new codification topic: investment property entities. The purpose is to address the inconsistency in accounting for two common real estate investment vehicles: REITs, which record their consolidated real estate investments

A&A b u z z

Proposed Changes for the Treatment of Investment Companies and PropertyBY ANTHONY F. MARONE JR . , CPA, C APITAL TRUST, INC .


19

at cost less depreciation, and real estate privateequityfunds,whichgenerallyreport as ICs and therefore record their investments on a net basis at fair value.

IPEs generally raise capital from (typically passive) investors; invest in real property for total return, including capital appreciation; and do not have significant investments other than real estate.

Similar to ICs, IPEs will report their investments at fair value, with changes in fair value recognized in earnings. IPEs would be exempt from the recently proposed lease accounting guidance and would instead recognize rental revenue aspaymentsarereceived.Lastly,IPEswould not have to recognize intangible assets related to in-place leases upon propertyacquisition.

One other proposed guidance nuance isthattheFASBhasclassifiedtheIPEdistinction preemptively to the IC determination. So, an entity that would otherwisequalifyunderbothparadigmswill report as an IPE, not an IC.

Next StepsThe proposed IC and IPE guidance could have significant impacts on entities in the investment management industry, REITs and other entities that may fall within the revised guidance. Practitioners should carefully consider all entities for potential application of IC or IPE accounting.

Anthony F. Marone Jr., CPA, is the vice president and controller of Capital Trust, Inc. He is a member of the New Jersey Society of CPAs Student Programs & Scholarships Committee and New Jersey CPA magazine Editorial Advisory Board. Contact him at [email protected].

Recognizing the significant need for long‐term care planning among our members, the New Jersey Society of Certified Public Accountants is pleased to announce a comprehensive new Long Term Care Insurance Program. This program offers a portfolio of comprehensive plans from multiple highly rated insurance carriers.

Through a partnership with Askin, Weber and Reed and Long‐Term Care Resources, New Jersey Society of Certified Public Accountants members now have a national network of long‐term care specialists available to explain the costs and benefits of this vital program.

More importantly, we have used the buying power of our association to obtain special discounted rates.

While we know this program is very valuable, insurance is not the right answer for everyone. However, information is your best weapon in the fight against the high cost of long‐term care and to determine if Long Term Care Insurance is right for you. Advanced planning is always the best approach. To request more information, call today 800‐616‐8759. Connect with us at: www.awrins.com


Providingadequatehealthinsurancebenefitsiscrucialtoemployee retention, but rising costs make this a huge

challenge for small business owners. As employers and employees are paying more for health insurance, it pays to empower employees to manage their own health care. Here are some current best practices that can help keep costs down.

High-Deductible Health Plan (HDHP) Combined with a Health Savings Account (HSA)This approach helps keep spending in check because it puts the responsibility on the user to think about costs. HSAs allow individuals with high-deductible health insurance plans to use employee pretax money to pay for uncovered medical costs and carry over unused funds to future years. Companies can fundtheaccountthemselvesorrequireemployeestodoso.

Health Reimbursement Accounts (HRAs) Coupled with High-Deductible Insurance PlansIn an HRA, employers set aside money to reimburse employees’deductiblesorqualifiedout-of-pocketmedicalexpenses up to a predetermined amount. If there is money left

in the account at the end of the year, it can be claimed by the employer sponsoring the HRA.

It is important that employers and employees don’t misconstrue the value proposition of HDHPs or HSAs. They may appear less expensive at first glance when, in fact, the better reason to select an HDHP or HSA is for how it works and not for how much it costs. These plans allow employees to actively manage their health care expenses and carry forward into future years dollars they paid into an HSA that they did not use during the year.

Flexible Spending Accounts (FSAs)FSAsallowworkerstopay,withpretaxdollars,formedicalexpensesthataren’tcoveredbyhealthinsurance.ManyFSAsfeature a specialized debit card to increase its ease of use and administration. Employees can use this to pay for co-pays, medications and other covered expenses. The money is automatically deducted from the pretax funds employees have set aside. Unused balances usually do not carry over into the next calendar year.

Company Wellness ProgramsWellness initiatives run the gamut from educating employees

BEST p r a c t i c e s

Employees Managing Their Own Health CareBY JAMES CELENTANO, EXTENSIS GROUP


21

about healthy lifestyles to programs that drive healthy behavior. Many employers are offering some kind of wellness service, whether they realize it or not:•Seasonalflushotsattheofficeasaneffectivewaytokeep

employees healthy and reduce the cost of lost productivity due to absences.

•Healthysnacksinthecompanykitchen.•Onsitehealthscreenings.•Behaviormodification,suchassmokingcessationor

marriage counseling programs, or discounted gym memberships.

These programs can help lower a company’s insurance costs by creating more health awareness among employees and encouraging them to take better care of themselves.

Disease ManagementDisease management aims to minimize the effects of a disease through screenings and preventive care. Certain chronic diseases, such as diabetes or asthma, disproportionately impact health care costs due to their ongoing nature and potential for costly complications.

One employee’s extended hospital stay or major health complication can be a huge financial burden for a small company with limited financial resources. To prevent such expenses, some businesses are adopting disease management programs that work with employees to better manage their chronic illnesses. Many insurers or third-party providers offer this service.

Medical HotlinesUnnecessary emergency room and urgent care center visits by employees drive up health insurance costs significantly. Manage these costs by providing workers who have minor medicalorbehavioralissuesandquestionstheabilitytofirst call a medical practitioner. Hotline programs are often available through insurers and benefit administrators or to businesses directly.

Prescription Mail OrderMaintenance and preventative drugs that are taken for more than 90 days are often more cost effective when obtained through a mail order program. Medications are also less likely to be skipped if they are regularly delivered to the patient.

At a time when the cost of health care and other benefits are rising, there is a greater need than ever for planning at companies, CPA firms and their clients. The best outcome is to ensure that with rising costs come a greater return on benefits investment.

James Celentano is the human resources vice president for the Extensis Group, a leading professional employer organization that provides clients outsourced human resource and risk management services, payroll and tax administration, insurance, benefits and regulatory compliance. Contact Celentano at 888-473-6398.

Member BenefitLearn health care industry trends as part of the Health Care Interest Group at njscpa.org/volunteer-contribute/groups.

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Under the suitability standard, financial products need only be

appropriate for clients’ investment objectives, risk tolerances and time horizons. Salespeople are free to select investments that benefit themselves the most, which is obviously a big difference between what is suitable and what is best for clients. That’s where the value of a fiduciary comes into play.

What Is a Fiduciary?A fiduciary is defined as “a person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faithandcandorwhichitrequires;aperson having a duty, created by his/her undertaking, to act primarily for another’s benefit in matters connected with such undertaking.” Thus, fiduciariesarerequiredtoputtheirclients’ interests ahead of their own and avoid conflicts of interest. They have to avoid, rather than simply disclose, conflicts of interest.

GovernanceThe Securities and Exchange Commission (SEC) was recently tasked by Congress to study whether or not registered investment advisors (RIAs)

and registered representatives of broker-dealers should be held to the same fiduciary standard. Currently, RIAs are regulated by the SEC and the Investment Company Act of 1940. Registered representatives of broker-dealersareregulatedbytheFinancialIndustry Regulatory Association and by the Securities Exchange Act of 1934. The Investment Company Act of 1940 requiresRIAstoactasfiduciariesand act in their clients’ best interests. Registered representatives of broker-dealers, however, are held to a lower suitability standard.

Broker-dealers usually work on a commission-based compensation system. They sometimes only sell an employer’s products. According to the Dodd-FrankWallStreetReformandConsumer Protection Act of 2010: “The sale of only proprietary or other limited range of products by a broker or dealer shall not, in and of itself, be considered a violation of the fiduciary standard that will govern sales of securities products by the SEC going forward.”

Potential ConflictThe world of commissions is fraught with conflict. One problem is that different products have different commission rates, yet both may be suitable for customers. Under current rules, registered representatives can recommend higher-commission mutual funds even if they are not in the client’s best interest. Additionally, different products have varying payout ratios, which is the percent of a sales commission that representatives receive. Brokers and mutual fund companies should consider changing the way they work, such as evening out commissions, to avoid such conflicts.

When registered representatives sell commission-generating mutual funds, they do not receive 100 percent

of the commission. Instead, they receive what’s known as a “payout.” Payouts can vary by broker-dealer or mutual fund family. In-house products usually have higher payouts than non-proprietary mutual funds, which is another conflict of interest.

Many broker-dealers and insurance companiesfrequentlyholdsalescontests. Contests may be to promote new investment products, with the prize being a bonus, paid vacation or big-screen television. The conflict these contests create is that salespeople have to sell the “right” products in order to win. Clients are typically unaware of such contests and may be sold products because of the wrong reasons, which are not in their best interests.

Raising the BarThe proposed rule that brokers will have to adhere to the fiduciary standard, and not the suitability standard, states that the fiduciary standard would apply to those providing financial advice to the public. Accordingly, sellers of variable and fixed annuities could also be held to a fiduciary standard. Variable annuities can have sales commissions that vary between 4 and 15 percent. The higher-commission annuities tend to have longer and higher exit penalties. So, how can 15-percent commissioned products be in clients’ best interests when 4-percent products will do? Moving to a fiduciary standard is a step in the right direction.

Bernard M. Kiely, CPA, is the president of Kiely Capital Management, Inc. He is a member of the New Jersey Society of CPAs Personal Financial Planning Interest Group and the New Jersey CPA magazine Editorial Advisory Board. Contact him at [email protected].

FINANCIAL p l a n n i n g

The Value of a Fiduciary BY BERNARD M. KIELY, CPA, KIELY CAPITAL MANAGEMENT, INC .


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The media often zeros in on the prenuptial arrangements of celebrity

divorce proceedings and, as a result, the prenuptial agreement has become a commonly recognized legal term. Prenuptial, or premarital, agreements are intended to spell out post-marital financial rights and obligations, as well as minimize the cost of divorce controversy.

CPAs usually become involved in the divorce proceedings of their clients and sometimes with their premarital planning. Needless to say, CPAs make an important contribution to the process in either case because of their uniqueknowledgeofindividuals’assets,liabilities and income, in addition to CPAs’ specialized understanding of the taxconsequencesofthecontemplatedtransactions.

New Jersey StatutePremarital agreements in the state of New Jersey are governed by a 1988 statute (the Uniform Premarital Agreement Act in New Jersey) under which certain terms can be negotiated prior to the marriage. These include the rights and obligations of the parties for disposition of property upon separation or death; the making of a will, trust or other arrangements; the ownership rights and the disposition of the death benefits from a life insurance contract; and the choice of governing law. The enforceability standards applicable to prenuptial agreements predating 1988 are based on the applicable decisional law.

Burden of ProofA party that wishes to challenge a premarital agreement has the burden of proof. This party needs to establish, by clear and convincing evidence, that the agreement was executed involuntarily, the agreement was unconscionable or that the party before execution of the

agreement was not provided with full disclosure of the earnings, property and financial obligations of the other party. Moreover, a prenuptial agreement can be set aside if a party did not consult independently with counsel and did not voluntarily and expressly waive, in writing, the opportunity to consult with an independent legal counsel.

CPA OpportunitiesThe financial provisions of the New Jersey law governing premarital agreements create practice development opportunities for CPAs who can team up with local divorce attorneys in providing auxiliaryservicesrequiredtopreparea prenuptial agreement. Accountants should be deeply involved in assisting clients in making appropriate disclosures about assets, liabilities and income necessary to enforce the premarital agreement. These disclosures should be transparent, complete and measured using appropriate standards of value.

An opportunity also exists for forensic accountants to assist the opposing party in attempting to set aside the prenuptial agreement by helping demonstrate that assets have been omitted or undervalued or obligations have been misstated. The forensic examination determines if the disclosures made have satisfied the statutoryrequirementsoffullandfair.

This area also offers a profitable practice development opportunity that leverages existing client relations and helps CPAs establish referral sources amongthemembersoftheFamilySection of the State Bar Association.

Forensic TechniquesForensicaccountantsutilizevariousinvestigativetechniquestouncoverhidden assets that might have been omitted in the statement of assets attached to the premarital agreement. Suchtechniquesincludereviewingtaxreturns, personal financial statements,

bank records and sometimes available public records should the opposing party be uncooperative.

Added IncentiveNew Jersey is a state where it seems easier to set aside a premarital agreement. If a premarital agreement gets set aside because the financial disclosures were inaccurate, both attorneys and accountants who were responsible for preparing the disclosures may be liable to the client. This risk provides an added incentive for a careful and diligent consideration of the client’s assets, liabilities and earnings, and faithful and complete representation of the same in the schedules attached to the premarital agreement.

CPAs’ education and training uniquelypositionthemtoassistclientswith premarital planning and divorce. CPAs’ assistance in negotiating and modifying premarital agreement terms, their ability to consider and analyze various income tax options and their help in translating clients’ financial information into plain language is enormously valuable to clients.

Henry Rinder, CPA, ABV, CFE, CFF, DABFA, FACFEI, is a member of the firm at Smolin, Lupin & Co., P.A. He is a past president of the New Jersey Society of CPAs. Contact him at [email protected] or 973-439-7200.

FORENSIC f i l e

The CPA and the Prenuptial AgreementBY HENRY RINDER, CPA, SMOLIN, LUPIN & CO., P.A.


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For companies that sell products, proper inventory valuation is vital

for business decisions and financial and income tax reporting. Inventory costing and valuation have a direct impact on company assets and net income. In order to utilize potential income tax benefits, it is important to evaluate different costing methods. When choosing an inventory costing method, the company should use the same method for financial and tax reporting for a reasonable period of time, asfrequentchangesbetweenmethodsare not allowed by the Internal Revenue Service or generally accepted accounting principles.

InventoryInventory includes all of the costs incurred in purchasing merchandise and preparing it for sale, including raw materials, direct labor and manufacturing

overhead. Even after merchandise is sold, it may still be included in the seller’s inventory. If the seller bears the shippingcosts–freightonboard(FOB)destination – then the seller owns the merchandise from the time it is shipped until it is delivered to the buyer. Goods thatareFOBshippingpointarethebuyer’s property, and consigned goods belong to the consignor.

Accounting and CostingThe primary methods of accounting for inventory are periodic and perpetual. In a periodic inventory system, sales are recorded as they occur, but the inventory and cost of goods sold are not adjusted. At the end of each period, inventory is physically counted to determine ending inventory. Inventory and cost of goods sold are then adjusted to actual based on the physical count.

The perpetual method accounts for each sale and purchase of inventory. Because every inventory transaction has been recorded in detail, the balance in the inventory account should represent the amount of inventory actually on hand at any time during the period. The perpetual inventory method should eliminate the need to perform physical inventory counts. However, a physical count should be performed at least annually due to potential clerical errors, fraud and spoilage. The perpetual method is preferred because of the real-time data provided.

The most common inventory costing methodsarefirst-in,first-out(FIFO);last-in,first-out(LIFO);andaveragecostorweightedaveragecost.FIFOmatchesthe older costs with revenues and results in a more realistic inventory valuation onthebalancesheet.LIFOmatchesthemost recent costs with current revenues, producing a more realistic income statement. Table I shows the effect on the balance sheet and income statement for each costing method.

During periods of rising inventory costs, cost of goods sold is highest with LIFOandlowestwithFIFO.Assuch,gross profit, net income and ending inventoryarelowestwithLIFOandhighestwithFIFO.

The assumed flow of goods for costing purposes does not have to match the actual physical movement of goods. Forexample,agrocerystoretriestosell the oldest units first to minimize spoilage. The physical flow of goods isonaFIFObasis,butthecompanycoulduseFIFO,LIFOoraveragecostin determining ending inventory for financial and tax purposes.

Lower of Cost or MarketInventory is generally valued at cost.

INDUSTRY i n s i g h t s

Selecting an Inventory Costing and Valuation MethodBY WILLIAM RYAN, CPA, SMOLIN, LUPIN & CO., P.A.


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However, if inventory is damaged, used or obsolete it should be reported at its net realizable value (selling price less estimated selling costs). When inventory can be purchased new at an amount that is less than its original cost, inventory should be written down to the lower of cost or market. The ceiling, or maximum, market amount at which inventory can

becarriedonthebooksisequaltothenet realizable value. The floor is the net realizable value minus a normal profit. Any reductions in inventory value are expensed in the current period.

Inventory costing and valuation have a direct impact on the assets and net income of the company. It is important to

evaluate the different options and select the methods which accurately reflect the company’s operations and leverage any potential income tax benefits.

William Ryan, CPA, is a manager at Smolin, Lupin & Co., P.A. He is a member of the New Jersey Society of CPAs. Contact him at [email protected] or 973-439-7200.

Table I: How Inventory Methods Impact the Balance Sheet and Income Statement

RISING COSTS FALLING COSTS

UNITS PURCHASE PRICE TOTAL UNITS PURCHASE PRICE TOTAL

1ST INVENTORY BATCH 100 $10 $1,000 100 $10 $1,000

2ND INVENTORY BATCH 100 $11 $1,100 100 $9 $900

3RD INVENTORY BATCH 100 $11 $1,100 100 $9 $900

4TH INVENTORY BATCH 100 $12 $1,200 100 $8 $800

TOTAL INVENTORY 400 $4,400 400 $3,600

AVERAGE COST PER 100 UNITS $1,100 $900

AVERAGE COST LIFO FIFO AVERAGE COST LIFO FIFO

SALES (200 UNITS AT $15) $3,000 $3,000 $3,000 $3,000 $3,000 $3,000

COST OF GOODS SOLD $2,200 $2,300 $2,100 $1,800 $1,700 $1,900

GROSS PROFIT $800 $700 $900 $1,200 $1,300 $1,100

STARTING INVENTORY VALUE $4,400 $4,400 $4,400 $3,600 $3,600 $3,600

COST OF GOODS SOLD $2,200 $2,300 $2,100 $1,800 $1,700 $1,900

ENDING INVENTORY VALUE $2,200 $2,100 $2,300 $1,800 $1,900 $1,700

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As accountants, we are increasingly dealing with an array of situations that can create hostile environments

for our clients, leading to more challenging engagements. Married couples who are divorcing; partnerships that are restructuring, adding or removing partners; families who are disputing estates; parties who are disagreeing over the buying and selling of property; and so on. In addition to the tax complexities involved, our roles become even more complicated when we have to transform from accountants to referees. As turbulence between two (or more) parties becomes inevitable, we must be prepared to neutralize ourselves from the emotional issues that arise.

As accountants, we must remain our clients’ most trusted business advisors during these challenging times. By providing some stability, it may actually help benefit everyone involved. Our clients not only rely on us for tax guidance, they also need our assistance in reviewing, preparing and completing various forms, statements and documents.

Although our preference may be to continue working with both parties, it may not be possible. Complications occur when information from both parties leads to a conflict of interest. At that point, it might be best to continue working with one of the clients and recommend that the other seek different representation.

It may be necessary to advise a client to preemptively separateassets.Forexample,inadivorcesituationhavetheclient open a checking and/or savings account in his/her own name at a bank separate from any joint accounts. Close any of the joint accounts that are currently open unnecessarily, such as credit cards and lines of credit. Closing these mutual accounts will ensure that a spouse cannot increase any mutual liabilities that both will be responsible for in the future.

When working with only one of the parties, practitioners may need records to which they do not have access. The following is a list of documents, or copies thereof, that should be secured:

•Appraisalsofanyownedproperty•Bankstatements,canceledchecksanddepositslips•Copiesofpersonal,business,trustandgifttaxreturns•Creditcardstatements•Deeds,closingstatementsandpropertyloandocuments•Depreciationschedules•Financialstatements•Income,propertyorliabilityinformation•IRAandretirementaccountstatements•Lifeinsurancepolicies•Lineofcreditstatements•Partnershipagreements

To solve the problem of accessing documents, we recommend that our clients sign a letter authorizing us to speak on their behalf. Speaking directly to brokers, lawyers and other accountants could allow for easier access to information. Having a client also sign a power of attorney allows us to speak directly to the Internal Revenue Service, the state, banks, credit card companies, investment brokers and anyone else necessary to access these records. This will help usrequesttranscriptsoftaxreturns,investigateopenissuesand take action if necessary. Timing is critical as it may take severalweekstoreceivealloftherequestedinformation.

Once you have taken the steps toward securing records and having clients open accounts separate from the other party, your next concern might be that the other party will attempt to damage or destroy records. On one end of the spectrum, have the client keep records somewhere where the other party does not have access to, such as a safe deposit box in his/her name. Or, it may call for the drastic step of obtaining a legal injunction to safeguard records.

Foranyinformationthatcannotbeeasilyaccessedfromthese sources, it may be beneficial to broker a meeting with all parties, which may also help to mediate and resolve the situation.

Unfortunately, hostile environments take a toll on clients and practitioners alike. Since hostility can make it more difficult to obtain full access to financial documents, we should make every attempt to assist and protect our clients by finding alternative methods of accessing this information. Having more comprehensive financial records will be helpful toward providing exceptional services to clients.

Adam S. Long, CPA, is a partner and Diane Oliveira is a tax manager at Sansiveri, Long & Co., LLC. Long is a member of the New Jersey Society of CPAs. Contact the authors at 973-472-1817.

SMALL/SOLE p r a c t i t i o n e r

Securing Documents in a Hostile EnvironmentBY ADAM S. LONG, CPA, AND DIANE OLIVEIRA, SANSIVERI, LONG & CO., LLC

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Also Inside: Education Reform is Coming to the State House

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New Jersey Chamber of CommerCe

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Join us for the 75th Annual Walk to Washington in January Page 20

(And Why These democrATs And republicAns Are Good for The economy)

meeT The n.J. chAmber’s leGislATors of The yeAr


Under §6013(a), only a husband and wife are eligible to make a single

income tax return jointly. Generally, marital status is determined as of the close of the taxable year. If the parties are eligible to prepare a joint return and choose to file jointly, the resulting tax is computed on aggregate income,

and tax liability is joint and several. Given a spouse’s separate responsibility for 100 percent of the tax liability, he/she should weigh the advantages and disadvantages of filing a joint return. Filingjointlyusuallygeneratesalowertax liability, but even if one spouse made the majority or entire amount of

taxable income, both are responsible for the tax liability.

Innocent spouse relief is available where it would be unfair to hold a spouse liable for the tax liability that was created by the other spouse. It can relieve one party from taxes, penalties andinterestacquiredfromajointtaxreturn that was filed with a spouse or ex-spouse. Innocent spouse relief is a favorable option for people who are burdened with tax debt through the spouse’s fault. Under certain requirements,aspousecanmakeanapplication for innocent spouse relief. The relief must be from liabilities arising from a joint return, and the non-requestingspousemusthavenoticeandparticipation rights.

There must be an understatement of tax on the joint return, and it should be attributable to some erroneous data or omission by the other spouse. The reporting spouse must not have received a benefit of the error. If someone signs a joint return under duress, the election to file jointly becomes invalid.

InternalRevenueService(IRS)Form8857,RequestforInnocentSpouseRelief,requiressensitiveinformationregarding prior and current marital status, education level, spousal abuse, knowledge of finances and income during the relationship, and an estimate of family income and expenses during the relationship. The application authorizes the IRS to contact the other spouse or former spouse with whom the joint return was filed to allow participation in the process.

Classic Innocent Spouse ReliefAll of the facts and circumstances help determineifitisinequitabletoholdthe innocent spouse liable. Among the many pieces of information collected are questionsabouttaxesowed:Weretheyassessed on income earned by the other

TAX t a l k

Filing for Innocent Spouse ReliefBY ROSEMARY F. ERVIN, CPA, THE HUNTER GROUP LLC


29

party who signed the return, and would a financial hardship exist if the applicant wasrequiredtopaythetax?

Monthly income and expenses must be detailed on the application for relief. The applicant must attest that he/she did not significantly benefit from the unpaid taxes. Economic hardship is determined fromtheresponsesonForm8887.

Relief by Separation of LiabilityIf a joint return was filed during the timeaspousefilesForm8557,andthespouses are no longer married or living in the same household, a spouse can requestunpaidtaxliabilityreliefviaseparation of liability. The applicant will not be responsible for joint and several liabilities, and the IRS will allocate liabilities between the spouses.

Equitable ReliefEquitableReliefisavailabletoapplicantswhodonotqualifyfortheaforementioned forms of relief. Relief may be allowed on a correctly filed tax return, but the entire tax amount was not paid. There are many criteria for establishingequitablerelief,anditisavailable only to the extent general relief or separate liability relief is unavailable. Arequestingspousewhoisstillmarriedtoorlivingwiththenon-requestingspouse can seek only general or equitablerelief.Aseparatedordivorcedspousecanqualifyforseparateliabilityrelief.

Form8857usedtobefiledwithintwo years of the first collection attempt. In July 2011, the IRS revised its two-yearrulefortaxpayersrequestingequitablerelief.TheIRSprocedureis

to notify each spouse on a joint return when liabilities exist and assessments are made. Notices serve as early warnings and continue to update with increasing interest. When the IRS does not receive a response to notices, levies and collection activities follow.

Rosemary F. Ervin, CPA, is a tax consultant for The Hunter Group LLC. She is a member of the New Jersey Society of CPAs Federal Taxation and State Taxation interest groups and the New Jersey CPA magazine Editorial Advisory Board. Contact her at 201-693-9821.

Member BenefitThe NJSCPA can find you per diem help during tax season at njscpa.org/career/job-bank.

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Electronic discovery in a divorce setting can be a dichotomy. According to

the court in Schreiber v. Schreiber, 904 NYS sd 886, 890 (NY App. Div. 2010): “As it pertains to matrimonial matters, electronic discovery may be crucial in the proper cases to determine and confirm the existence of vital information. In others, it may be a weapon of abuse which will further clog a system that is already in dire need of relief.” This is certainly true where finding fault is required,forexampleindivorcematters.New Jersey is not a no-fault state for divorce. While a New Jersey couple can file for divorce using irreconcilable differences, essentially creating a no-fault divorce, there are many cases where other grounds for divorce, such as extreme cruelty, are more appropriate, especially where issues of domestic violence need to be considered relative to child custody issues.

In addition to potential e-discovery through social networking, such as Facebook,acouple’selectronicallystored personal and business financial records are also subject to e-discovery. Accountants, often the custodian of their client’s financial records, may find themselves in the middle of a client’s divorce dispute and may receive a litigation hold communication from an attorney.

Attorneys will institute a litigation hold on their client to preserve records, including a description of all documents to be preserved, and suspend any file destruction processes. The letter may instruct the client to keep a master list with names of parties notified and dates of notification. During a litigation hold, parties to the litigation generally must preserve potentially relevant information. The attorney may also send an evidence-preservation letter to the opponent to trigger a duty to preserve. In both instances, the accountants for the parties may be instrumental in assisting in this process.

Forbackground,alitigationholdis generally issued when a party is reasonably aware that it will be a party tolitigation.Foraplaintiff,triggerscould include filing a complaint, seeking advice of counsel or sending a cease-and-desistletter.Foradefendant,triggers could include receiving a summons or complaint, official notice of a government investigation or discovery requests.

Failuretopreserveorproduceelectronic evidence falls under spoliation,theconsequencesofwhichinclude the possibility of dismissal or judgment, monetary fines, fees and costs, and an adverse inference drawn by the court.

TECH c e n t e r

A Look at e-Discovery BY ROY H. KVALO, CPA, THE CURCHIN GROUP, LLC

Attorneys are charged with establishing the economic cost-benefit of e-discovery and, especially in family law matters, the emotional cost. Determining the economic cost-benefit of e-discovery may necessitate the assistance of an accounting expert. The attorney may consider NJ Rule 4:10-2(f), in which a party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost.

NVE, Inc. v. Jesus J. Palmeroni, et al., a 2011 New Jersey ruling, demonstrated the court’s reaction to improperly implemented litigation holds. Judge Salas imposed monetary penalties and also an adverse inference instruction in her opinion. She stated, “NVE did not destroy records deliberately but was grossly negligent in failing to preserve them.” What is noteworthy in this case is the timing of events. While Palmeroni was fired in January 2006, the lawsuit against him was not filed until November 2006. The issue is what may have occurred to any electronic records in the intervening period. The attorneys for NVE admit that the firm failed to issue a litigation hold.

In addition to maintaining a document-retention policy, each company should have a litigation-hold policy in place. This provides protection and a procedure for a company and its employees to follow in preserving documents, including electronically stored information that may be relevant to pending or threatened litigation. A company that operates a routine document-retention plan before the threat of litigation will generally not face penalties for the destruction of evidence under the plan’s routine guidelines, provided the company immediately suspends the document-retention plan when litigation is actually threatened.

Roy H. Kvalo, CPA, ABV, CFF, CVA, is the director of litigation and valuation services at The Curchin Group, LLC. He is a member of the New Jersey Society of CPAs Business Valuation Forensic Litigation Services Interest Group. Contact him at [email protected].


31

THEBUSINESSDIVORCEGROUPDISPUTES AMONGCO-OWNERS OF A BUSINESSRAISE DIFFICULT QUESTIONS:Should I buy out my partner? Should we sell the business? Is mypartner stealing from the business? Is my partner breaching his or herfiduciary duties? Can I be fired? What are my rights? Should I sue?

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reach each of the 15,500 members of the New Jersey Society of CPAs, and 55 percent of readers take action after seeing an advertisement in the magazine – by either purchasing the product, contacting the advertiser, visiting a website or recommending the product or service to a client. For advertising opportunities,

contact Advertising Manager George Chateauneuf at [email protected].

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CPE Offerings and EventsUpcoming Education Foundation Events

Date Event/Code Location CPE Credit

1/18 Hands-On Tax Return Workshop – Partnerships & LLCs (Form 1065) (E1201281) Roseland 8/TX

1/19-20 Hands-On Tax Return Workshop – Individuals (Form 1040) (E1201291) Roseland 16/TX

1/19 Business Valuation Roundtable – Valuation of Medical Practices (E1201300) Roseland 2/SK

KEY

njscpa.org/catalog

AA – Accounting & Auditing MC – Multiple Categories PE – Professional Ethics

CS – Consulting Services MT – Management SK – Specialized Knowledge

EC – EconomicsPD – Personal DevelopmentTX – Taxation

Upcoming Chapter Events

Date Chapter Event/Code Location CPE Credit

1/18 Morris/Sussex Technology Update (E1201199) Mount Olive 2/CS

1/19 Atlantic/Cape May Financial Planning (E1201139) Northfield 2/CS

1/20 Mercer Business Development (E1201239) West Windsor 2/CS

1/23 Southwest Jersey New Jersey and National Professional Issues Update (E1201189) Voorhees 2/SK

1/25 Middlesex/Somerset Come Fly with Me – Microsoft Office 2010 (E1201229) Somerset 2/CS

1/26 Monmouth/Ocean Invite an Attorney Night (E1201249) Neptune N/A

2/2 Hudson IRS Systemic Advocacy (E1202029) Secaucus 2/TX

2/7 Union County Fraud and Forensics (E1202039) Garwood 2.5/AA

SOCIETY p a g e s

Beginning a new year is a great time to re-examine your insurance coverage to make sure it is still the right fit for you and your business. Members of the New Jersey Society of CPAs have special access to various money-saving insurance products including:

Car InsurancePlymouth Rock Assurance (formerly High Point Auto Insurance) offers members a 15-percent discount on auto insurance.

Disability Income Protection, Life Insurance, Accidental Death and Dismemberment, Hospital Indemnity and Business Overhead Expense Coverage For more than 60 years, Askin, Weber &

Reed, Inc., has been providing NJSCPA members with approved insurance protection. It offers members-only rates and professional advice on selecting the best coverage for you, your family and your business.

Long-Term CareAskin, Weber & Reed, Inc., is now partnering with Long-Term Care Resources (LTCR), a specialized marketing firm dedicated to the management, implementation and national distribution of long-term care insurance. Carriers include John Hancock, Prudential, Mutual of Omaha, Great American, Allianz and others. All carriers are rated superior or excellent by A.M. Best, and most offer a

5-percent discount for Society members.

Malpractice InsuranceCAMICO Mutual Insurance Company and Argent Professional Insurance Agency LLC are the NJSCPA’s preferred carrier and agent for accountants’ malpractice insurance. The program offers members the most competitive rates available, the broadest coverage in the market and dividend-receiving opportunities.

For more information about these insurance products, as well as other product or service discounts for members, visit njscpa.org/marketplace.

Start the New Year with Some Peace of Mind


Crossword by Myles Mellor

1 2 3 4 5 6

7

8 9 10 11

12 13 14

15 16 17

18 19

20 21 22 23

24 25 26

27 28 29

30 31

32 33 34 35 36

37 38 39

40 41

Across

1 Hollywood's most celebrated for divorces

4 King who had 6 wives- 2 were divorced

7 __ or about

8 Separate (2 words)

11 Yankee baseball great who divorced from Cynthia

12 Divorce case participants may need this- truth ____

13 Lexus ___

15 Matrix character

17 Carole Lombard married this 30s film star after he divorced his wife

18 Left

21 Carry out

23 High exam scores

24 Garth Brooks' wife after he divorced Sandy Mahl (first name)

27 Type of TV

28 Cycling great who divorced from Kristin Richard

30 __ Doc Smith, Sci-fi writer

31 The Buckeyes, briefly

32 Man of Angelina fame

34 Henry VIII's alternate action to divorced?

37 Charge (2 words)

39 Bonnie ___ Clyde

40 Emotional component of many divorce cases

41 He played a divorce lawyer in "Intolerable Cruelty"

Down

1 Boxer divorced by Robin Givens

2 "Tie a ____ ribbon round the old oak tree"

3 Select, with "for"

4 Groom, for short

5 Golfer who split from Laura Andrassy to marry a tennis great

6 Alpine song

9 Not them

10 ______ Brant, the husband of supermodel Stephanie Seymour- they called off their divorce recently

11 Summer month, for short

14 Dates

16 Maui "good-byes"

19 Commercials

20 Court call

22 Busy (3 words)

24 It comes before the ugly (2 words)

25 Island getaway

26 Basketball great who split from Juanita

29 Frivolous, in love especially

31 Kardashian groom

33 First name in Notre Dame football

35 Mail Boxes ___

36 Compass heading

38 No, in a way

Across1. Hollywood’s most celebrated for divorces4. King who had six wives, two were divorced7. __ or about8. Separate (two words)11. Yankee baseball great who divorced Cynthia12. Divorce case participants may need this: truth ____13. Lexus ___15. Matrix character17. Carole Lombard married this 1930s film star after he divorced his wife18. Left21. Carry out23. High exam scores24. Garth Brooks’ wife after he divorced Sandy Mahl (first name)27. Type of TV28. Cycling great who divorced Kristin Richard30. __ Doc Smith, sci-fi writer31. The Buckeyes, briefly32. Man of Angelina fame34. Henry VIII’s alternate action to divorce37. Charge (two words)39. Bonnie ___ Clyde40. Emotional component of many divorce cases41. He played a divorce lawyer in Intolerable Cruelty

Down1. Boxer divorced by Robin Givens2. “Tie a ____ ribbon round the old oak tree”3. Select, with “for”4. Groom, for short5. Golfer who split from Laura Andrassy to marry a tennis great6. Alpine song9. Not them10. ______ Brant, the husband of supermodel Stephanie Seymour, (recently called off their divorce) 11. Summer month, for short14. Dates16. Maui good-byes19. Commercials20. Court call22. Busy (three words)24. It comes before the ugly (two words)25. Island getaway26. Basketball great who split from Juanita29. Frivolous, in love especially31. Kardashian groom33. First name in Notre Dame football35. Mail Boxes ___36. Compass heading38. No, in a way

See the answers on njscpa.org/newjerseycpa.

March/April Coming Attractions

International Financial Reporting Standards (IFRS)

n A CPA Primer on IFRSn Interview with the IASB Chairn Navigating Between Dual Financialsn Large-Firm Implementation Case StudyM a g a z i n e o f t h e N e w J e r s e y S o c i e t y o f C e r t i f i e d P u b l i c A c c o u n t a n t s Ma r c h • A p r i l 2 0 1 2


Get Involved

SOCIETY p a g e s

Health Care Interest Group Reforms Its Members Health care reform. Individually, these three words are quite clear. Put them together and you launch a battle fought by employers, insurance companies, consumers, politicians, illegal immigrants, health care providers, caretakers and others. Come to think of it, is there anyone not included in the debate?

New Jersey Society of CPAs members who are part of the Health Care Interest Group realize this is more than a flavor-of-the-month topic. It’s an ongoing, critical issue that will affect organizations and clients for years to come, and it’s not the only issue. The use of electronic medical records (EMR) is on the rise. New Jersey, one of the first states to experiment with accountable care organizations (ACOs), has health care providers ready to launch this new health care delivery model in Camden, Trenton and Newark in 2012. Recovery audit contractors have turned up nearly $1 billion in Medicare payment errors.

So, how will hospitals and physician practices respond? Are CPAs prepared to support their clients and organizations through these crucial changes? The NJSCPA Health Care Conference, sponsored by the Health Care Interest Group in September, covered these topics and more. “Our primary objectives were to provide up-to-date information to people working in the health care industry,” said John J. Walsh III, CPA, interest group leader. “There’s so much uncertainty regarding current legal battles. It’s important for us to be aware of the changing scenarios and where we think the industry is going.”

A conference committee comprised of Walsh; Deirdre Hartmann, CPA, Nisivoccia LLP; William R. Oster, CPA, McEnerney,

Brady & Co., LLC; and Lewis D. Bivona, CPA, WithumSmith+Brown; worked with NJSCPA education staff to generate topics and acquire speakers. More than 100 attendees learned from experts in the field such as James M. D’Onofrio Jr., Continuum Health Alliance, LLC. D’Onofrio gave a physician’s update on using business intelligence, analytics and metrics to make better business decisions. “I found the sessions on EMR, ACOs and transactions between physicians and hospitals to be very helpful in developing company strategy,” D’Onofrio said.

Kevin S. McKay, CPA, IMS Health, travelled from Pennsylvania to attend. “The speakers hit on all of the major challenges and reform progress, or lack thereof. The best takeaway for me was learning the specific steps an organization has to complete in order to have access to federal funds provided for in the new legislation.” Knowing what’s coming next has been a concern. The conference confirmed that all of this reform was going to stick, which led to a whole new set of issues for many. “Seeing that this type of health care reform is actually going to take place makes me concerned about losing my job,” said one attendee. Regardless, attendees seemed grateful for the speakers who helped make a potentially difficult situation more understandable.

Educating members through an annual conference is just one of the interest group’s objectives; helping members build their networks is another. “Being involved is the best way to talk to people who are dealing with similar issues,” added Walsh. “I’ve met people who I otherwise wouldn’t have had an opportunity to meet – people who both share and don’t share my views on industry changes. It’s fascinating to be a part of, and I feel very fortunate to have that opportunity.”

Thinking about joining the ever-growing health care sector? Walsh appreciates the diversity. “The health care industry offers many specialization opportunities: acute care hospitals, physician groups and many more, particularly with Baby Boomers entering their golden years. That gives you a lot of flexibility in a soft economy.”

For more information on health care reform, join the discussion at upcoming Health Care Interest Group meetings. Visit njscpa.org/getinvolved, or contact John Walsh at [email protected].

Technology Product Reviews Coming Soon The Technology Interest Group is reviewing technology products (software, gadgets, applications, etc.) to help NJSCPA members make smart purchases and sound informed when talking to those who are a little more tech savvy. The reviews will be posted on njscpa.org and are written by CPAs who think just like you. Here are some products being considered for review:• Apps• Backup software• e-readers• Google+• iPad2• Microsoft Office 365• Mobile document scanners• Streaming-enabled products• Survey software• Tablets

Do you have a product you’d like to see reviewed? Send your suggestions to Victoria Kosuda, CPA, CITP, Beyond Financials Consulting, LLC, at [email protected].

Get Involved NowVolunteer opportunities are available throughout the year. Here are a few


35

activities that need your support now. Let us know how you’d like to be involved at njscpa.org/getinvolved.

CPAs Needed for Ask the Experts – NJSCPA members are needed to field personal income tax filing questions from the public. The Ask the Experts program runs from February 1 through March 31, and all participation is done via email. Volunteers are asked to commit to the entire two-month project and will receive an average of two questions per week. Contact Jennifer O’Leary at [email protected] or 973-226-4494 x251.

Tax-Season Call-In Program – The NJSCPA will be working with the media to offer tax-season advice to their viewers and readers. We are looking for Society volunteers to answer phone calls from the public for a few hours one day in late February and/or early March. The media will highlight the participants and the most common questions asked, so this is a great opportunity to get exposure for your firm. Contact David Plaskow at [email protected] or 973-226-4494 x228.

In MemoriamThe NJSCPA is saddened to report that Frederick Cezer, CPA, recently passed away at the age of 104. One of the first CPAs in the country, he began practicing in the 1930s. He was the founding member of Cezer Katzman, which merged with Sobel & Company in 2000. Cezer joined the NJSCPA in 1933 and became very active with the Essex Chapter, various Society committees and the NJSCPA Board of Trustees.

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38

Newark(October 20)

President’s RemarksBoard President Keith Balla, CPA, mentioned that a Law & Ethics course-provider meeting was held to discuss changes taking effect in January 2012 and review any other outstanding issues.

Executive DirectorBoard Executive Director William Mandeville indicated that renewal letters were mailed to licensees on October 19.

CommitteesCPA Examination – Rigos resubmitted its course for approval. A committee member visited the testing site in Clark, NJ, and was very pleased with how well the site is run.

Peer Review Program – James W. Brackens Jr., CPA, of the American Institute of CPAs and Henry J. Krostich, CPA, of the National Association of State Boards of Accountancy Compliance Assurance Committee gave a peer review program presentation.

Monitoring Profession – To date, Uniform Penalty Letters have led to 288 voluntary license surrenders and a total of $3.67 million in assessed penalties.

MiscellaneousCPA Examination Services (CPAES) has recently taken an augmented interpretation of New Jersey Accountancy Regulation 13:29-1A.3(b)1: “An applicant shall possess a baccalaureate degree, or its equivalent, based upon a curriculum that includes a minimum of 60 semester hours selected from courses in English, history, foreign languages, mathematics, general psychology,

philosophy, biological sciences, physical sciences, economics, sociology, religion, government, political science, geography, fine arts and music; and a minimum of 60 semester hours in professional courses including at least 24 semester hours in accounting, including municipal and government accounting; at least six semester hours in business law; at least six semester hours in finance; at least six semester hours in economics; and at least 18 semester hours in related business subjects.”

This action by CPAES has led to widespread rejection of CPA candidates to be eligible to take the Uniform CPA Exam based on specific undergraduate courses taken. It also threatens to disqualify hundreds, if not thousands, of students currently in accounting programs in New Jersey.

Based on the ambiguous wording of the regulation, the board voted to waive the specific curriculum qualifications of 13:29-1A.3(b)1 to take the CPA Exam under the 120-hour option until the Rules & Regulations Committee of the board determines what, if any, permanent changes will be proposed and approved. A waiver would also be eligible for those negatively affected since August 2011. The board will notify CPAES of this waiver and send a list of those improperly denied for remediation.

PublicNew Jersey Society of CPAs Executive Director Ralph Albert Thomas stressed the need to have more of a collaborative effort with the board on the front-end of matters such as the above so as to avoid any unintended consequences that hold massive implications. For example, if the board does not ultimately make any revisions, colleges would need time to

institute any changes. He also indicated that it is unfair and uncompetitive to have a higher standard to sit for the CPA Exam at 120 credits than at 150 credits. Thomas pointed to research that indicated under the current regulation, no student in New Jersey would technically be able to sit for the CPA exam. Thomas stressed that any waiver include any retroactive and prospective candidates that are denied. He also questioned why this became a catch-all so far into the process.

Irene K. Douma, CPA, an accounting professor at Montclair State University, requested the board enhance communication to those interested parties, as well as provide them the opportunity to provide input which, in this instance, would help academia provide the best delivery vehicle for education.

Deputy Attorney General Tobey Palan and Balla welcomed any interested party to submit a position statement. Palan also indicated that this was not a rule change issue, but a change in the application of the regulation by CPAES that the board was unaware of. She said the board has a distribution list for interested parties of important announcements and rule changes. Those interested parties should contact Mandeville to be included on the distribution list.

Kenneth A. Heaslip, CPA, associate professor at Bloomfield College and chair of the NJSCPA Educators Committee offered the state board the assistance and input of his committee on this matter.

NJ State Board of Accountancy ReportBoard Issues Waiver for 120-Hour CPA Exam Candidates

SOCIETY p a g e s

CLASSIFIEDS

Mergers/Acquisitions

Central NJ, regional CPA firm with an outstanding environment is looking to merge-in sole practitioners, small firms, practices needing succession planning or growth-oriented individuals seeking a synergistic platform. Reply in confidence: [email protected].

Monmouth County – Seeking practitioner or firm to share office space and amenities with retirement-minded CPA. Eventual buyout for right firm. File 080511

Growing CPA firm with first-class marketing culture in central NJ is looking to expand its practice. Ideal merger candidates are sole practitioners or small firms with established niche focus and strong business development skills and/or in need of a succession plan. Reply in confidence to [email protected].

Goldstein Lieberman & Company LLC, one of the region’s fastest growing CPA firms, wants to expand its practice and is seeking merger/acquisition opportunities in northern NJ and the entire Hudson Valley region, including Westchester. We are looking for firms ranging in size from $300,000 to $5,000,000. To confidentially discuss how our firms may benefit from one another, please contact Phillip Goldstein, CPA, at [email protected] or 800-839-5767.

Klatzkin & Company, LLP, an established firm with offices in Mercer County, NJ, and Pennsylvania is looking to acquire or merge-in small firms or sole practitioners in need of succession planning. We offer our clients an extraordinary and individualized level of commitment, a dedicated staff and a broad spectrum of available services. We work with a constantly expanding, diversified client base. Firms seeking growth and stability are encouraged to inquire. Reply to [email protected].

Parsippany, NJ, three-partner CPA firm seeks retiring practitioner to merge/acquire practice ranging from $100K and up. Please contact Carl Gutt, 973-451-0800 x22, or [email protected].

The Curchin Group, LLC, a central NJ, Monmouth County firm is seeking to merge-in near-retirement sole practitioners and small firms needing succession planning. Other individuals seeking growth and expansion are welcome to inquire. Initial practice continuation also an option. Reply in confidence to Peter Pfister, CPA, at 732-747-0500 or [email protected].

Want to sell or merge your accounting practice? Accounting Practice Sales has qualified buyers waiting and financing available to sell your practice quickly and get you the best deal possible. For information regarding our risk-free and confidential services, call Bradley Holmes at 800-397-0249. Buyers see listings and register for free email notifications at accountingpracticesales.com.

New Jersey – CPA firm wishes to acquire or merge with progressive, small to mid-sized firms. File 0701

Established North Jersey CPA firm looking to acquire practices ranging from $35K and up from retirement-minded accountants. We have successfully merged-in other practices. Reply to [email protected].

Established Toms River CPA firm looking to acquire practices or merge with other CPAs. Very visible private offices with space available. Contact [email protected].

Professional Services Pre-issuance reviews/quality control – Do you need an experienced reviewer to evaluate your audit reports, workpapers and checklists? Peer Review – Do you need an experienced system or engagement reviewer? Audits – Do you have clients who need an audit, but your firm doesn’t perform them? If the answer is yes, contact Brian Bertscha to discuss your firm or client needs and obtain a free quotation at [email protected]. Referrals appreciated.

Real Estate

Fairfield office available for rent in prestigious building near Essex County Airport (not affected by flooding). Fully furnished partner’s office in small CPA firm. Includes use of conference room, copier, fax and computer network. Phone and receptionist services available. Option for potential affiliation with retirement-minded CPA. Call Michael: 973-227-0086.

Small accounting firm in Fort Lee, NJ, looking to sublet part of our office. Perfect for a sole practitioner or small firm looking to share expenses and cut overhead. We are also open to buying a small practice and/or bringing in a new partner under the right conditions. Email [email protected].

Bridgewater professional office, prime location. Great 800-square-foot office space with highway sign. The space has three offices, waiting room, bathroom and storage. Available immediately; [email protected] or 908-218-0800.

Classified Advertising

Replies to ads with file numbers should be sent to:

File______________________

New Jersey CPA Classifieds425 Eagle Rock AvenueSuite 100Roseland, NJ 07068-1723

To see additional classifiedlistings or to place an ad,visit njscpa.org/classifieds.


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In October 2011, the New Jersey Society of CPAs was alerted that a number of CPA Exam candidates in New

Jersey had their applications rejected by CPA Examination Services (CPAES) because they did not meet the education requirements.Uponfurtherinvestigation,theNJSCPAlearnedthat there had been some confusion about the interpretation of New Jersey’s regulations concerning education requirements.

The NJSCPA immediately began working with the New Jersey State Board of Accountancy to resolve this situation, which is in the best interests of CPA candidates and the public.Toalleviatetheconfusionandpotentialconsequences,the state board voted at its October meeting to waive the specificcurriculumqualificationsundersectionN.J.A.C.13:29-1A.3(b)(1) of New Jersey’s accountancy regulations and permit candidates to sit for the CPA Exam under the 120-hour option until the state board determines what, if any, permanent changes will be proposed and approved. Here’s what the state board’s vote means to current CPA Exam candidates:•SectionN.J.A.C.13:29-1A.3(b)(1)ofNewJersey’s

accountancy regulations has been and continues to be “the law of the land” until the state board determines what, if any, changes will be made to the section.

•Foraninterimperiodoftime,currentCPAExamapplicantswhodonotmeettherequirementsinSectionN.J.A.C.13:29-1A.3(b)(1) will be told by CPAES via letter that they are being granted a waiver by the state board that permits candidates to sit for the CPA Exam with at least 120 hours of general college-level education, including a baccalaureate degree.

To sum up the action by the state board, under the current regulations, applicants wishing to take the CPA exam prior to earning the full 150 credit hours must earn a

bachelor’s degree from an accredited college or university, take 60 semester hours of general courses and take specific government, finance and business courses. However, the state board will, on an interim basis, grant waivers to candidates to sit for the exam if they have 120 semester hours of general college-level education and a bachelor’s degree. Keep in mind these two important points:•CurrentCPAExamapplicantsmustcompleteatleast120

hours of education (including a bachelor’s degree) to sit for the CPA Exam.

•ACPAlicensewillnotbeawardeduntilthefull150creditswiththerequiredconcentrationshavebeenobtainedandtheexperiencerequirementismet.

The rules covering applicants with at least 150 hours of education were not affected. An applicant may apply to sit for the exam if he or she has completed at least 150 hours of education, including a baccalaureate or higher degree. An applicant shall be deemed to have satisfied the educational requirementif,aspartofthe150semesterhoursofeducation,the applicant has satisfied one of four conditions, which are explained in detail at njscpa.org/index/students/cpa-exam/requirements.

Before applying for the CPA Exam, the National Association of State Boards of Accountancy recommends that candidates read Information for Applicants to determine if they are eligible to apply as a first-time candidate. They are also advised to read The Candidate Bulletin before submitting applications online or through the mail. These documents are available at nasba.org/exams/cpaexam/newjersey.

NJSCPAmemberswithquestionsabouttheeducationrequirementsmaycontacttheNJSCPAat973-226-4494 x209. Below is the general language that CPAES is incorporating into its letter to CPA Exam applicants who are granted a waiver to sit for the exam.

An Important Notice for CPA Exam CandidatesBY DON MEYER, NJSCPA COMMUNIC ATIONS & MARKETING DIRECTOR

STUDENT o u t l o o k

Dear ____,

Your application for the Uniform CPA Examination has been received and evaluated. Per New Jersey Regulation N.J.A.C. 13:29-1A.3, you were found educationally deficient to sit for the exam. However, the NJ State Board of Accountancy has decided at its meeting on October 20, 2011, to grant a waiver to those candidates to sit for the examination with 120 semester hours of general college-level education and a bachelor’s degree for an interim period. Please note, you will need to meet the 150-hour-rule requirements before you can be licensed to practice as a CPA in New Jersey pursuant to N.J.S.A. 45:2B-49 and N.J.S.A. 13:29-1A.3.


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As you probably know by now, in August, New York became the 48th state to adopt mobility legislation. The

new law became effective in November 2011. However, before you rush out to take advantage of it, there are several things youneedtobeawareof.Ifyouhaveanyspecificquestionsregarding these items or the law in general, contact the New York State Board of Accountancy at 518-474-3817 x160. To see a copy of the new law, visit http://open.nysenate.gov/legislation/bill/S2628A-2011.

Under New York’s mobility law, any CPA who comes into New York with the new mobility practice privilege falls under the jurisdiction of New York State. There are also strict public protection provisions that take into consideration any disciplinary action a visiting CPA has received in the past seven years. If a CPA meets any of the disciplinary criteria outlined below, he or she must notify the New York State Board of Accountancy and cannot practice in New York until he/she has received written permission from New York. If anyone practices before receiving permission, that person will be considered to be practicing without a license, which is a crime in New York. You must get permission from New York in writing to practice under the state’s mobility law if you have faced any of the following disciplinary situations in the past seven years:•You have been the subject of any final disciplinary action

taken against you by the licensing or disciplinary authority of any jurisdiction with respect to any professional license, or have any charges of professional misconduct pending against you in any jurisdiction.

•You have had your license in any jurisdiction reinstated after a suspension or revocation.

•You have been denied issuance or renewal of a professional license or certificate in any other jurisdiction for any reason other than an inadvertent administrative error.

•You have been convicted of a crime or are subject to pending criminal charges in any jurisdiction.

Out-of-state CPAs should also note that New York has certainregistrationrequirementsthatmayapplytothem,includingarequirementthatCPAswishingtopracticeaudit/attest or services incidental to audit/attest must do so through aregisteredfirm.AnotherrequirementisthataCPAsigningor supervising the issuance of accountants’ reports on financial statementsshallmeetNewYork’scompetencyrequirementsunder the Rules of the Board of Regents, Section 29.10 (a)(13), which is available at op.nysed.gov/title8/part29.htm#cpa.

LEGISLATIVE v i e w s

What You Need to Know About New York’s Mobility LawBY JEFFREY T. KASZERMAN, NJSCPA GOVERNMENT RELATIONS DIRECTOR

Help Your Community, Join a Board or CommissionThe state of New Jersey has hundreds of boards, authorities and commissions that address just about every public policy issue imaginable. Your local and county governments also offer dozens of opportunities to join boards, task forces and commissions that seek the input and expertise of local citizens like you. Governor Chris Christie’s website has a section for people interested in serving the community by joining a state board or commission. The governor makes appointments to many of these state boards and commissions. Visit state.nj.us/governor/admin/bca.html to see a listing of hundreds of boards and commissions. If you see something you like, simply upload your resume.

If you aremoreinterestedinlocalissues,inquirewithyour local government officials to find out what types of voluntary citizens boards they have available. Most communities have a number of volunteer boards that work on a broad range of issues, such as redevelopment projects, human relations and local history. Contact your mayor’s office, town council members or local school board representatives for more information. You can also contact your county government officials to see what is open on a county level.

The New Jersey Society of CPAs encourages its members to become active with these boards. Serving on a board is a rewarding way for you to contribute to the community and for the community to recognize the great expertise and experience that CPAs have to offer. And while there are certainly many boards and commissions that need the financial expertise that CPAs have to offer, Society members should consider joining any type of board that catches their interests.

We rarely break format in New Jersey CPA magazine, but this is

aspecialoccasion.Forthisissue,we’rerenaming the Member Profile column the Staff Profile column in honor of Joanne Chuckerel, who recently retired from the New Jersey Society of CPAs after 47 years of member service.

She remembers the exact day she started at the Society: June 26, 1964. Bonanza was the top rated television showandLyndonJohnsonhadbeenpresident for less than a year. “I was 17 years old,” says Chuckerel. “The receptionist went on maternity leave, and I got the job through Orange High School where I had graduated the previous week.”

When she started, the office had three other employees: an executive director, an administrative assistant and someone who worked something called an addressorgraph machine for member mailings. Speaking of members, at that time the Society had only 2,200. “Back then,theSocietywasheadquarteredinNewark, and while we were looking for new office space, we actually operated in an old dance studio for a short time,” laughs Chuckerel.

Chuckerel almost didn’t last 47 days, much less 47 years: “The rest of the staff and the members were older, and I wasn’t sure I would be happy there. Thankfully, my mom said ‘just give it a chance.’” Mom doled out plenty of good advice, as Joanne was the youngest of five girls. “My dad used to joke that he kept going out hunting for duck and always came back with rabbit,” she recalls.

So what kept her coming back to the Society for more than four decades? “I’ve worked with a lot of wonderful people and made friends with many of the members over the

years,” notes Chuckerel. “It was interesting to see young members come into the Society at the same time as I had and see how we ‘grew up’ together. I recall James Hannon, CPA, and Doug Stives, CPA, joining the Society and moving up the ranks to become presidents.”

How have the organization and the profession changed since she started at the Society? “Because of mounting regulations, accountants need to know more today and that means there are far more educational initiatives. And, clearly, there are more female CPAs today than in the 1960s,” comments Chuckerel.

Chuckerel has worked in most areas within the Society, including membership, professional development and several others. “I enjoyed the annual conventions and being able to put names with voices and faces,” she adds. “The Society really serves an important purpose, and the members know they can count on the staff to take care of them.”

“Formorethan10years,Joanneand I worked closely as the ‘front line team’ who helped members from the reception desk. It’s been a pleasure. God bless you, my friend,” says Christine Romanoskie, NJSCPA Education Center Administrator.

What does Chuckerel like to do when she’s not at the Society? “I love going to the theater,” she says. “I recently saw Jersey Boys and it was fantastic!” She also likes to read, go to Atlantic City and entertain at her home

in West Orange. Chuckerel is alsoactiveinherchurch,OurLadyof Mount Carmel in Orange, and is a past president of the church’s Women’s Auxiliary. A health scare six years ago got her involved in Making Strides Against Breast Cancer.

What does Chuckerel have planned for retirement? “I have no real definite plans,” she says. “I’ll take it easy and then do a little traveling, maybe volunteer at a hospital.”

And what will Chuckerel miss most about the Society? “I’ll definitely miss my co-workers and helping the members. As I mentioned, I’ve made many friends over the years, and I truly hope to continue those relationships.”

“I’ve had the great pleasure of having worked with Joanne for more than 20 years. During that time, when many in the workforce moved from job to job, Joanne remained steadfast in her commitment to the NJSCPA,” says Jim Hardenberg, NJSCPA Education FoundationDirector.“I’mgratefulforthat commitment and honored to have shared so many years together. I wish her all the best of everything in her retirement.”

We’re Glad She Gave It a ChanceBY DAVID PLASKOW, NJSCPA PUBLIC ATIONS EDITOR

STAFF p r o f i l e


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Connie Mitchko - 908-237-2960 or [email protected]

www.medallionfinancial.com

Meeting the financing needs formanufacturers, distributors and professional service companies.

Credit lines of $250,000 to $5,000,000

Accounts Receivable, Inventory & Machinery/Equipment

Argent Professional Insurance Agency, LLC (formerly McLachlan Kane Insurance Agency),

30 Technology Drive, Warren, NJ 07059 t.908-769-7400 x46 [email protected] www.insuranceagent.com

Your NJSCPA Accountants Malpractice Program

CLIENT: Argent Professional Insurance Agency, LLC Tara Ricciardi - (908)769-7400 ext 38 [email protected] DESIGN : JSM Concepts , Inc. John Malinowsk i - (516) 379-8221 john @ jsmconcepts .com August 12, 2011

Mr. Raspante will head Argent’s accountants’ malpractice insurance divi-sion and its M&A division. Most recently John ran the Merger & Acquisition Department of a large New York-based accounting firm, and prior to that worked directly for CAMICO for 8 years as Senior Risk Manager and Head of National Accounts. John is a frequent speaker at NJSCPA events, and is available to the society and its chapters to speak on a variety of CPE topics.

Please contact him to schedule a time to review your insurance needs or to discuss having him present at a future event.

NJCPA Jan/Feb 2012

Documents

Transcript of NJCPA Jan/Feb 2012