Professional Issues Update

1. Professional Issues Update Presented by Kevin Hickman 2013-14 TSCPA Chair

2. TSCPAMission & Vision The mission of the Tennessee Society of Certified Public Accountants is to enhance the success of our members through service, support and advocacy. TSCPA Vision: “To be the premier professional organization serving CPAs in Tennessee”

3. Broad Strategic Initiatives • Promoting public awareness of the roles and the value of CPAs; • Representing the professional views of our members; • Helping to attract the best and the brightest people to the accounting profession; • Providing high-quality services and education; • Providing opportunities for members to interact at local and state levels; and • Maintaining the TSCPA as a highly-effective professional society.

4. TSCPA Membership vs. Total Licensees in TN * Approx. 10% of licensees are non-residents of Tennessee.

5. TSCPA MembershipAge & Gender Breakdown women men

6. TSCPA Members: Areas of Practice Public Practice 45% Industry 40%

8. Chartered Global Management Accountant (CGMA) The AICPA and CIMA have joined together to form a joint venture which powers a new designation for management accountants, the Chartered Global Management Accountant (CGMA). The CGMA is designed to elevate management accounting and further emphasize its importance for businesses worldwide.

9. CGMA Qualifying Criteria

10. Trends Facing the Profession Unstable global economy Interconnectivity (ripple effect) International Technology Regulatory Human Capital

11. Mandatory Audit Firm Rotation

12. GAAP/IFRS Convergence Convergence and IFRS 2014 2013 FUTURE IFRS? Leases re-exposure Revenue recognition standard Financial instruments Principles-based Affects virtuallyall businesses SEC milestone -IFRS decision

13. Integrated Reporting Consultation draft released in April by the International Integrated Reporting Council Combines audited financial statements, a report on management's assessment of the business and a sustainability report. Broadens the relevance of the core product CPAs produce

14. Trends Facing the Profession International Technology Regulatory Human Capital Security Privacy Cyber attacks Opportunities for CPAs

15. Technology CPAs are well positioned for Big Data CPAs, clients capitalize on advantages of cloud computing

16. Cyber Security In just the past few months … $45M stolen in first global cyber attack on ATMs Associated Press’ Twitter account hacked; caused panic on Wall Street, sent Dow plunging Government takes precautions over expected ‘OpUSA’ cyber attack TD Bank hit by ‘targeted’ cyber attack American Express hit by cyber attacks Wells Fargo says cyber attack affects access to online banking

17. BYOD • Bring Your Own Device: rise of smartphone and tablet use creates IT and security challenges • Password guidelines, retention policies for email to protect company data

18. Trends Facing the Profession International Technology Regulatory Human Capital New players Uncertainty Gridlock Government spending

19. Private Companies Financial Reporting • 15,000 public companies registered with the SEC • 28.5 million private companies employing more than half of all private sector workers • GAAP is driven by public company issues • Private company financial statement users have information needs different from public companies

20. FRF for SMEs Released June 10 Traditional and proven accounting methods Targeted disclosure requirements Historical cost measurement basis Optionality so financial statements can be targeted to users’ needs Uncomplicated and principle-based Simplified consolidation model and no concept of variable interest entities

21. State Issues • Definition of Attest • Public’s reliance on CPA audit/attest services • Issuance of reports reserved for licensed CPAs who demonstrate competence and qualifications • AICPA, NASBA to pursue revised language for UAA (Note: Tennessee’s language already complies) • Firm Mobility • CPA firms providing services across state lines • Modeled on individual CPA mobility

22. Tax Reform

23. Mobile Workforce Taxation • 41 states impose a personal income tax • Federal legislation: if you work 30 days or less in a state, you're not subject to that state's personal income tax

24. CPA Mobility • All states (except Hawaii) have followed Tennessee’s lead and adopted mobility legislation – which is a practice privilege that generally permits a licensed CPA in good standing to practice outside of his or her state without obtaining another license. • www.cpamobility.org - provides up-to-date information on the status of CPA mobility laws across the country.

25. What's at Stake? The U.S. Government’s Financial Statements and the Country's Fiscal Health

26. 2012 Financial Statements

27. 2012 Financial Statements

28. U.S. Financial Statements Differ from Other Organizations • Most financial statements show obligations or liabilities on balance sheet • U.S. Government’s financial statements do not include Social Security and Medicare • Footnote disclosures • Not reflected as liabilities

29. Reality of Future Obligations • These future obligations equal: $46.3 trillion in additional deficit Plus $14.8 trillion cumulative deficit Total deficit: $61 trillion deficit • $61 trillion is the equivalent of: Every household in America owing the full cost of two new homes and not getting to live in them

30. Tax Return Preparer Regulation Fingerprintingfor Tax Return Preparers • IRS is delaying / reconsidering its fingerprinting requirement for tax return preparers • IRS will move forward with other aspects of regulation, including: • Competency Testing • Continuing Education Requirements for preparers who are non-CPAs, attorneys or enrolled agents

31. IRS Releases PTIN Holder Information • IRS began releasing PTIN holders’ contact information to those making requests under the Freedom of Information Act (FOIA) • PTIN holders may update their accounts (and eliminate info from FOIA request) so that only business or P.O. box information in available – www.irs.gov.

32. Court Overrules IRS • In January, a federal judge in the U.S. District Court for the District of Columbia granted a permanent injunction to stop the IRS tax return regulatory program • Suit was filed by three independent tax preparers from Chicago, N.J. and Wisconsin and the Institute for Justice, a conservative civil-liberties advocacy group • They accused the IRS of enforcing the requirements without Congressional approval • The Court agreed with the plaintiffs and said the program affected their livelihood

33. IRS Appeal Fails • IRS appealed the decision to the United States Court of Appeals • But in March the District of Columbia Circuit Court of Appeals three-judge panel upheld the earlier decision • So the mandatory testing and CPE components of the program are suspended, although preparers could pursue those on a voluntary basis • The registration piece is still in place so all paid tax return preparers (including CPAs) still need to have a PTIN • IRS is appealing again, but there has been no court date set and this process will take time

34. Guiding Principles of Good Tax Policy • Neutrality • Economic growth & efficiency • Transparency & visibility • Minimum tax gap • Appropriate government revenues • Equity and fairness • Certainty • Convenience of Payment • Economy of calculation • Simplicity

35. Tax Return Due Date Legislation • The delivery of K-1 Schedules close to tax return filing deadlines makes it nearly impossible for taxpayers and their tax advisers to prepare and file timely, accurate returns  • Schedule K-1 information is a component of millions of tax returns of individuals, S and C corporations, trusts, estates, partnerships and other entities • Taxpayers and their CPAs need the information included in the Schedules K-1, which are issued by partnerships, S corporations, some trusts and estates, so that the owners and beneficiaries can file personal and business tax returns  • However, the information returns often arrive just days before either the original or extended return due date

36. House & Senate Bills • Legislation in the House and Senate last Congress but was not successful • Reintroduced again this year • H.R. 901 sponsored by Rep. Lynn Jenkins (R-KS) and S. 420 by Sen. Mike Enzi (R-WY) • TSCPA and AICPA are working to see this legislation passed

37. Summary Chart of Current and Proposed Due Dates

38. Internet Commerce is Growing • Internet commerce is growing • Last year, Internet sales were $226 billion, up nearly 16 percent from the previous year according to the Commerce Department • The National Conference of State Legislatures estimates that states lost $23 billion last year because they couldn’t collect taxes on out-of-state sales

39. Tennessee State Board of Accountancy • Chair: William (Trey) Watkins III, CPA – Memphis • Vic L. Alexander, CPA – Nashville • William F. Blaufuss Jr., CPA – Nashville • James Troy Brewer, CPA – Nashville • Stephen M. Eldridge, CPA – Jackson • Henry A. Hoss, CPA - Chattanooga • C. Don Royston, CPA – Kingsport • Charlene P. Spiceland, CPA – Memphis • Casey M. Stuart, CPA – Chattanooga

40. Trends Facing the Profession International Technology Regulatory Human Capital Demographics change Use of talent Business shift towards measurement

41. Accounting among best jobs for growth Yahoo! Finance ranked accounting among the Top 10 happiest jobs 10 200K 200,000 news jobs will be created during this time 22% The accounting profession is expected to grow by 22% over the next 10 years

42. CPA: Stable and Steady 3.5% 7.5% Unemployment rate among accountants Current U.S. unemploymentrate

43. More CFOs are CPAs Source: Wall Street Journal, 8/13/13

44. Succession Planning 46% of firms have a formal succession plan 44% of firms say M&A talks are on table 6% of sole practitioners have a succession plan

45. Diversity | Retention | Collaboration | Recruitment

46. Gen Y changing office structure

47. “In a period of rapid change and increasing complexity, the winners are going to be the people who can LEARN faster than the rate of CHANGE and faster than their COMPETITION.” - Tom Hood, CPA.CITP.CGMA

48. Pathways Report Pathways Commission originally chaired by TSCPA member and UTK professor Bruce Behn Commission’s purpose is to enhance the opportunities and relevance of the accounting education experience Report issued in 2012 has six ongoing recommendations

49. Pathways Report Recommendations • Building a Learned Profession • Future Faculty and Doctoral Education • Respecting and Rewarding Teaching • Curriculum Models and Learning Resources • Attracting High-Potential, Diverse Students • Data and Information

50. Attracting the Best & Brightest TSCPA’s Educational & Memorial Foundation Scholarship Program awarded $250,000 in scholarships to 123 students in 2013.