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October 2005
IRS Elevating Enforcement of Tax Code
In a speech before the National entities are being asked to participate
Conference of State Social Security in certain kinds of shelters,” Miller
A M E R I C A N I N S T I T U T E O F C E R T I F I E D P U B L I C A C C O U N TA N T S
Administrators, Steven T. Miller, said. “They are being asked because
commissioner of the Tax Exempt and the party seeking to defer or shift tax-
Highlights Government Entities Division of the able gains needs a nontaxable entity
Internal Revenue Service, discussed a to receive the income in order to
number of issues of interest to tax exempt make the shelter work. An entity that is used
E2 and government entities, including the IRS’s this way, or that permits itself to be used this
Survey Shows CPA recent increased focus on compliance with way, is called an accommodation party. And
Executives Concerned the tax code by such organizations. state and local governmental entities have
About U.S. Economy been recruited by promoters to play the role
Social Security Act of the accommodation party in a number of
E2 Miller said that one of his objectives is to abusive shelters. If an unusual or too-good-
AICPA Issues Updated help state and local governments meet their to-be true proposal comes to your attention,
Audit Guide responsibilities under the Social Security please be prudent and be safe.”
Act and to try to assure the income security
E2 of governmental retirees. He added that the Compliance Checks and Examinations
FASAB Publishes IRS carries out its assignment—the collec- He noted that both compliance checks and
Statement on Inter-Entity tion of employment taxes and withheld examinations have increased and will con-
Cost Implementation wages from governmental entities—through tinue to do so. Among four problem areas he
the relatively new federal, state and local cited, the first was worker classification
E3 government (FSLG) function. issues. Are workers employees or not? This
GASB Publishes OPEB is under examination in all segments—fed-
Implementation Guide Excise and Employment Taxes eral, state and local. The second—fringe
With respect to excise and employment benefit issues, such as moving expenses—is
E3 taxes, he noted, the federal system exempts under exam in all segments. Third is the
NASACT to Offer State governments from income taxes. However, improper classification of legal settlements
Governments Finance and he added, the IRS is concerned with pay- identified at the federal level. Fourth has to
Payroll Benchmarks ment of excise and employment taxes do with the inclusion or exclusion from
because state and local governments are an Federal Insurance Contribution Act cover-
E3 important part of the economy: age. The issue relates to the failure of some
OMB Update Governmental entities employ one of every small municipalities to file and pay employ-
five persons working in the country. He esti- ment tax.
E4 mates that there are some 87,000 state and To see the entire speech, visit:
Companies View local entities. He also noted that FSLG is www.irs.gov/pub/irs-tege/miller_
Employee Involvement in changing its focus. After years of directing speech_ncssa_0705.pdf
Associations as its energies to customer outreach and educa-
Beneficial, Survey Shows tion, with minimal effort on enforcement, it
is now elevating enforcement to the top of
E4 its agenda.
Next Generation
Accountants Return to Tax Shelters
Their Roots “I’m raising the issue of tax shelters with
you because state and local governmental
E2 T H E C PA L E T T E R / G O V E R N M E N T • O C T O B E R 2 0 0 5
Survey Shows CPA bers in business and industry. “The them, including escalating home prices, the
one potential area of weakness corresponding levels of financing and high
Executives Concerned revealed by the survey is in the work- consumer debt.
About U.S. Economy force plans for the largest companies. “We were also interested in the impact
CPAs serving as chief executive offi- Only 12% of the total said their orga- of a potential revaluation of the Chinese
cers, chief financial officers and in nizations would decrease the size of yuan on our members’ businesses,” said
other financial positions are less optimistic their workforces in the next six months. Morrow. “The responses were particularly
about the U.S. economy than they were six However, 22% of those working for compa- interesting in hindsight, because the yuan
months ago, according to the results of the nies with revenues of more than $1 billion did undergo revaluation in July, a month
Business and Industry Economic Outlook reported plans for workforce reductions.” after the survey took place.”
Survey, a semi-annual study conducted by The major concerns fueling the reser- Eighty-four percent said that a 10%
the AICPA. vations about the economy are ballooning revaluation of the yuan would have a mini-
Indeed, only 57% of these CPA decision energy and employee costs; increased regu- mal impact on their pre-tax profits. For
makers have a positive outlook on the state of lation; and the cascade effect of Sarbanes- companies that would be affected by a
the economy, as opposed to 71% in Dec. Oxley Act provisions. More than 50% of revaluation of the yuan, there was an even
2004, when the prior survey took place. the respondents reported being more con- split between those that would experience
About three quarters of the respondents cerned about these issues than they were six pre-tax profit gains and those that would
(74%), however, expressed continued opti- months ago. see a negative effect on their profitability.
mism about the prospects for their own orga- On specific policy issues, CPA execu- The survey, conducted in June, repre-
nizations, up slightly from 73% in Dec. 2004. tives indicated greater concern about the sents the views of 1,465 AICPA members in
“What’s particularly interesting is that impact of changes in short-term interest public and privately held companies, gov-
despite the concerns about the economy, rates on inflation than unemployment. On ernment and not-for-profit organizations.
expectations for growth, spending and Social Security reform, more are worried Complete survey results are available at
workforce increases continue to be robust at about maintaining current tax rates than the AICPA Financial Management Center.
the individual company level,” said John current benefit levels. Respondents also
www.aicpa.org/FMCENTER
Morrow, AICPA vice-president for mem- wrote in additional issues that concerned
AICPA Issues Updated Audit Guide auditor’s reports excerpted from the guide can be
The AICPA has updated the audit guide, Government found at the AICPA Government Audit Quality
Auditing Standards and Circular A–133 Audits, for Center Web site by clicking on Illustrative auditor’s
conforming changes as of May 1. It presents guid- reports for audits performed under Government
ance on the audits of financial statements conducted Auditing Standards and OMB Circular A-133.
in accordance with Government Auditing Standards (the “Yellow
www.aicpa.org/GAQC
Book”). It includes recommendations for the conduct of audits
performed in accordance with the Single Audit Act Amendments The guide (product number 012744CPA10; $55 for mem-
of 1996 and Office of Management and Budget Circular A–133, bers; $68.75 for non-members) can be purchased from AICPA
Audits of States, Local Governments, and Non-Profit Member Services:
Organizations. Appendix C of the guide identifies changes that
service@aicpa.org 800/362–5066
were made to the 2005 edition to incorporate recent changes in
standards, requirements and other guidance.
888/777–7077 (9:00 a.m. to 6:00 p.m., ET)
The guide includes examples of the various reports that are
issued in a Yellow Book audit and in a single audit. Illustrative
FASAB Publishes Statement on inter-entity cost provision in SFFAS No. 4. standard establishes a date for implementa-
Inter-Entity Cost Implementation SFFAS No. 4 requires that reporting tion of the inter-entity cost provision.
entities report the full costs of outputs in The standard is effective for reporting
The Federal Accounting Standards general purpose financial reports. The full periods beginning after Sept. 30, 2008, with
Advisory Board has issued Statement of cost of an output should include the costs earlier implementation encouraged. The
Federal Financial Accounting Standards covered by other reporting entities. These FASAB has discontinued printing hard
No. 30, Inter-Entity Cost Implementation: costs are referred to as inter-entity costs. copies. The statement is available on the
Amending SFFAS No. 4, Managerial Cost SFFAS No. 4 recognized the difficulties in FASAB Web site.
Accounting Standards and Concepts. This attaining this goal and provided for gradual
www.fasab.gov/standards.html
standard requires full implementation of the implementation of inter-entity costing. This
Published for AICPA members in government. Opinions expressed in this CPA Letter supplement do not necessarily reflect policy of the AICPA.
Joseph F. Moraglio, supplement editor Ellen J. Goldstein, CPA Letter editor
703/281–2037; e-mail: jmoraglio@yahoo.com 212/596–6112; egoldstein@aicpa.org
O C T O B E R 2 0 0 5 • T H E C PA L E T T E R / G O V E R N M E N T E3
GASB Publishes OPEB Implementation Guide after Dec. 15, 2005. Employer implementation of
Statement No. 45 also will proceed in three phases, starting
The Governmental Accounting Standard Board has pub- one year later.
lished a Guide to Implementation of GASB Statements Nos. The guide provides the answers to more than 250 ques-
43 and 45 on Other Postemployment Benefits. The guide tions about important topics, such as:
was prepared by GASB staff primarily to assist preparers • Scope and applicability of Statements Nos. 43 and 45,
and auditors of governmental financial statements and those who including distinguishing between OPEB benefits and other
advise them as they implement the GASB’s recently issued stan- forms of employee benefits, such as compensated absences,
dards on accounting and reporting for healthcare and other non- termination benefits and pensions.
pension benefits provided to retirees. These benefits are com- • Actuarial issues, including the timing and frequency of actuar-
monly referred to as other postemployment benefits or OPEB. ial valuations associated with OPEB, selection of methods and
Statement No. 43, Reporting for Postemployment Benefit assumptions and application of criteria related to the projection
Plans Other Than Pension Plans, addresses accounting by plans of benefits for employers that participate in community-rated
that administer OPEB, and Statement No. 45, Accounting and plans.
Financial Reporting by Employers for Postemployment Benefits • Treatment of implicit rate subsidies that arise when retirees are
Other Than Pensions, establishes accounting and reporting insured in a group with current employees.
requirements for state and local government employers that pro- The implementation guide (product code GQA43/45) can be
vide OPEB. Implementation of Statement No. 43 for plans will ordered through the GASB’s order department:
proceed in three phases, based on the revenues of the plan’s
www.gasb.org 800/748–0659
largest participating employer, starting with fiscal years beginning
NASACT to Offer State from Hackett and Accenture to all According to NASACT, the
50 states as well as the District of benchmarks are designed to help
Governments Finance and Columbia and the U.S. territories. state governments identify areas
Payroll Benchmarks NASACT said the program will where they can benefit from best
The National Association of State Auditors, offer state governments a way to practices and target processes that
Comptrollers and Treasurers will offer spe- analyze and target improvements in are inefficient and to help state
cialized finance and human resources/pay- the efficiency and effectiveness of their finance managers prioritize where they can
roll benchmarking services to state govern- finance and human resources/payroll oper- make process improvements through stan-
ments under a contract signed with The ations; compare their performance with dardization and simplification.
Hackett Group and Accenture. that of their public- and private-sector For additional information, visit:
According to NASACT, under the peers; and compare the performance of
www.nasact.org
terms of the agreement, it will offer bench- individual agencies with others in their
marking and related consulting services state.
OMB Scorecard Shows Improvement Their Money, the second annual report on the President’s
in Agency Management Management Agenda (PMA). The report says the PMA is projected
to save taxpayers between $50 billion and $100 billion each year by
Federal agencies have made significant improve- improving government performance and efficiency.
ments in their management practices, according to To view the scorecard and report, visit:
the latest Executive Branch Management Scorecard
www.results.gov
released by the Office of Management and Budget. The scorecard
also highlights the Department of Labor as the first and only agency
to achieve the top “green status scores” in all five management dis-
ciplines. Write CPA Letter Articles, Receive CPE Credit
According to OMB, agencies earned a total of 43 green status The CPA Letter government supplement encourages readers to
scores, an improvement of 16 green status scores over last year’s share information and experiences through bylined articles on
third quarter scorecard. In addition to the department’s five greens, subjects of interest to your fellow CPAs in government. If the
the Departments of State and Energy each achieved four green and topic fits our editorial calendar and your article is featured, you
one yellow status score, the next level down from green. On the may claim continuing professional education credits for the time
separate program initiative scorecard, the Department of Housing you spent preparing the article (in accordance with the Joint
and Urban Development earned the government’s first green status AICPA/NASBA Statement on Standards for Continuing
scores for improper payments and the faith-based and community Professional Education, revised as of Jan. 1, 2002). The first step
initiative. OMB noted that while 85% of agency status scores were is to submit article topics for approval to:
red—the lowest level—on the first scorecard in 2002, today 75% of
jmoraglio@yahoo.com
status scores are green or yellow.
OMB also released Giving the American People More For
E4 T H E C PA L E T T E R / G O V E R N M E N T • O C T O B E R 2 0 0 5
Companies View Employee marketing departments—with the their skills and expertise,” said Max
nation’s 1,000 largest companies. Messmer, chairman of Accountemps.
Involvement in Executives were asked, “In general, “Participation in professional associations
Associations as Beneficial how beneficial is involvement in is an effective way to learn of new industry
In a national survey conducted by an industry or professional associations developments and network with others in
independent research firm and devel- to an employee’s career?” Their the field.”
oped by Accountemps, companies said they responses: Messmer also suggested that employ-
value employees who not only have the ers should encourage their staff to take
technical expertise required for their jobs Very beneficial 25% advantage of educational and certification
but also exhibit a commitment to their pro- opportunities offered by industry organiza-
Somewhat beneficial 61%
fession. Eighty-six percent of hiring man- tions. “Allow staff to take the time to truly
agers surveyed cited involvement in indus- Not very beneficial 13% get involved and reap the benefits of
try or trade associations as beneficial to an Not at all beneficial 1% becoming active members. These groups
employee’s career. 100% typically sponsor conferences, seminars
The national poll includes responses and professional development courses.”
from 150 senior executives—including “Companies value employees who
those from human resources, finance and proactively seek opportunities to develop
Next Generation Accountants Return to Their demand for their services. Opportunities will expand for profes-
sionals to pursue consulting roles at large public accounting firms
Roots, Study Shows and independent consultancies, many of which focus on specialty
According to research by Robert Half International (RHI), recent niches.
corporate governance mandates and an emphasis on ethics and
accurate financial reporting have led to heightened scrutiny and a Skills and Specialties in Demand
back-to-basics approach in the accounting profession. Accountants The research also showed that:
have become increasingly prominent contributors among organiza- • Organizations across all industries have a need for skilled
tions, and their responsibilities and visibility have risen accord- accounting and finance staff, with the greatest demand in the
ingly. assurance, financial analysis, internal audit, forensic accounting
What does this mean for the next generation of accountants? and international accounting specialties.
There will continue to be myriad opportunities for those who can • Technological proficiency will remain a critical skill for next
help companies meet compliance requirements and support busi- generation accountants. Firms seek employees who understand
ness expansion projects. This is just one trend identified in Next both the financial and technology aspects of various business
Generation Accountant: A New Outlook on a Timeless Profession, improvement initiatives. Valued areas of expertise include sys-
a research initiative conducted by RHI. tems documentation, flowcharting and data warehousing as well
Next Generation Accountant examines how current events are as knowledge of database management and enterprise resource
shaping the future of the accounting and finance profession and planning systems.
identifies the skills and competencies crucial for career success. To • The complexity of recently enacted accounting regulations and
gather this information, RHI commissioned independent surveys the cross-functional nature of compliance work also underscore
and interviewed experts in accounting and academia. the need for strong communication abilities and other soft skills
Among the highlights of the study: such as diplomacy, persuasiveness and problem solving. In fact,
• Pressure to meet compliance deadlines is the biggest impact of when asked what impresses them most when interviewing exec-
increased corporate governance on business, according to 37% utive-level job candidates, CFOs placed equal weight (34%) on
of chief financial officers surveyed. verbal communication and problem-solving skills.
• Fifty-eight percent of CFOs at privately held companies said
their organizations are implementing new practices in response The Value of Certifications
to governance mandates for publicly held companies. RHI research also found that a majority of CFOs believe that a
• A majority of CFOs (53%) said it will be important for accoun- professional credential—such as CPA, certified internal auditor
tants to have a solid understanding of foreign accounting regula- and certified fraud examiner—enhances marketability. “The ability
tions in the next five years. to build upon one’s knowledge base is critical for next generation
• Forty-nine percent of CFOs said they would recommend pursu- accountants. They must dedicate themselves to continuing educa-
ing a background in general accounting to someone just begin- tion, including the pursuit of additional certifications, to move for-
ning an accounting career. ward in their careers,” said Max Messmer, chairman and CEO of
Robert Half International.
The Role of the Consultant For a free copy of Next Generation Accountant: A New
According to the research, accountants with expertise in areas such Outlook on a Timeless Profession:
as internal controls, business continuity planning, anti-fraud mea-
www.nextgenaccountant.com 866/328–0577
sures and mergers and acquisitions are experiencing greater
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