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Other Comprehensive Basis of Accounting Fundamentals | 4152308D

July 1, 2015
Sacramento Area
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Keeping CalCPA Members Connected and Informed

CBA Approves License Fee Changes

June 16, 2015

At its May meeting, the CBA approved regulation to adjust the fees for a CPA license and renewal of a license. The adjustment returns the fee back to the $200 level of 2011-12 after a planned period of lowered fees. For Uniform CPA Exam and application fees, the CBA decided not to return to the higher fee levels and instead keep them at $50. The new fee structure will take effect July 1, 2016.

FTB Reviewing Interest Calculations Related to IRS Rulings

June 16, 2015

The State Controller and the FTB Chair have directed the FTB to review and adjust interested calculations related to two IRS rulings: Rev. Rul. 99-40, 1999-2 CB 441; and Rev. Proc. 94-60, 1994-2 CB 774. These pertain to corporate netting, and hence are not applicable to a large number of taxpayers. However, the FTB has created a web page that provides information about which taxpayers may be impacted by the adjustments, and included example of the calculations involved.

New BOE Newsletter: ‘News for Tax Practitioners’

June 16, 2015

The FTB is promoting the Board of Equalization’s (BOE) Publication 542, News for Tax Practitioners, What You Need to Know about California Sales and Use Tax. This new BOE newsletter includes information on tax rate changes, new sales tax laws, lumber fees, use tax information, the California Film and Television Tax Credit Program, and much more.

CBA Issues Finding on National Enforcement Guidelines

June 16, 2015

The California Board of Accountancy unanimously issued a finding that the National Association of State Boards of Accountancy’s Guiding Principles of Enforcement meets the CBA’s enforcement practices.

NASBA developed these Enforcement Guidelines to serve as a national model to which it believes all state boards of accountancy should aspire. These principles provide guidance to states in various areas of enforcement including timeframes, resources, case management, disciplinary guidelines and internet disclosure.

The CBA will now compare how other states’ enforcement programs perform relative to the NASBA Enforcement Guidelines. This ensures that those out-of-state licensees practicing in California under the practice privilege program are being properly monitored by their licensing jurisdiction, thereby protecting California’s consumers of accounting services. The CBA anticipates that this comparison will take place throughout the remainder of 2015.

New Member Benefit: CalCPA Adds Affinity Partner

June 16, 2015

Members benefit from CalCPA’s group purchasing power. CalCPA Affinity Programs are selected specifically for CPAs, offering prices, products and services that are not available elsewhere in the marketplace.

CalCPA has recently added a new affinity partner for you to take advantage of: Credible, a student loan refinancing platform.

Learn more about this program and the rest of CalCPA’s affinity partners.

CAMICO Tip of the Month: Investment Fraud

June 2, 2015

Investment fraud in large dollar amounts is not unusual and tends to affect engagements in financial statement services, tax advice and investment advice. Due diligence and skepticism are paramount in addressing and avoiding liability. Obtain background, credit and reference checks for the client before accepting significant engagements, paying attention to the level of client integrity and competency.

Due diligence is also essential with respect to any specific investments made on the client’s behalf. If not performing the due diligence work necessary with respect to investments, the CPA needs to make sure that someone does take responsibility for performing the work.

The longer a CPA has been associated with a client before fraud is uncovered, the more risk exposure to the CPA. After a certain length of time, the CPA becomes a trusted financial adviser with fiduciary responsibilities to monitor the client’s financial resources. Pay close attention to older clients—if there is a perception that the CPA did not appropriately advise or warn older clients, a jury will be more inclined to punish the CPA.

For more information about CPA firm insurance issues, call (800) 652–1772 or go online.

Audit Deficiencies Putting Benefit Plan and Participants at Risk

June 2, 2015

The U.S. Labor Department’s Employee Benefits Security Administration (ESBA) has published its study on the quality of benefit plan audits performed by certified public accountants. The report, Assessing the Quality of Employee Benefit Plan Audits, reveals serious issues with the system.

More than 7,300 licensed CPAs nationwide audit more than 81,000 employee benefit plans. EBSA’s review found that 61 percent of audits fully complied with professional auditing standards or had only minor deficiencies under professional standards. The remaining 39 percent of the audits contained major deficiencies, however, which put $653 billion and 22.5 million plan participants and beneficiaries at risk. These figures reflect increases in the amount of plan assets and number of plan participants at risk compared with prior EBSA studies.

Improving Standards for the Auditor’s Use of Specialists’ Work

June 2, 2015

The Public Company Accounting Oversight Board issued for public comment a staff consultation paper that seeks input on potential changes to standards for the auditor’s use of the work of specialists, specifically the objectivity and oversight of specialists and the use of their work in audits.

The Auditor’s Use of the Work of Specialists, discusses the increase in the use and importance of specialists in recent years due, in part, to the increasing complexity of business transactions reported in a company’s financial statements.

The paper raises questions about whether PCAOB standards adequately address the auditor’s use of the work of specialists, and whether more rigorous standards and specific procedures are needed in this regard to help the auditor respond to the risks of material misstatement in financial statements. The staff is seeking input on possible alternatives to address the issues discussed in the paper.

Corporations Filing on a Water’s-edge Basis

June 2, 2015

By electing water’s-edge, a taxpayer elects into a system of taxation, which represents a peculiar blend of federal and state taxation concepts. California Revenue and Taxation Code Sec. 25110(a) provides the tests to determine if a particular corporation, or part thereof, is included in the water’s-edge combined report. The water’s-edge rules do not supersede:

  • The unitary business concept (corporations must be engaged in a unitary business to file a combined report, whether they file on a worldwide or water’s-edge basis).
  • The allocation of income rules of the Uniform Division of Income for Tax Purposes Act (R&TC secs. 25120 – 25141).

R&TC Sec. 25113 governs the manner of making a water’s-edge election as provided under R&TC Sec. 25110. A corporation electing water’s-edge must do each of the following:

  • Compute its California tax on a water’s-edge basis.
  • Use California Form 100W, California Corporation Franchise Tax or Income Tax Return—Water’s-Edge Filers.
  • Attach the California Form 100-WE, Water’s-Edge Election, to the timely filed, original return (Form 100W) for the year of the election.

Ascend Ninth Annual Leadership Conference: Knife’s Edge

June 2, 2015

This CalCPA-sponsored event—featuring keynote speaker John Chiang, California treasurer and former state controller—will take you through a professional “knife’s edge” journey. Questions the event will address include how you:

  • Embrace continuous innovation and forge a new path?
  • Practice balance and take calculated risks?
  • Move past uncertainty with confidence, and learn from fear and failure?

Learn more and register.

2015 California Financial Literacy Summit

May 19, 2015

California educators, nonprofit representatives, legislators, small-business owners, parents, CPAs and other financial professionals will come together July 30 to discuss how to improve financial literacy in California. The summit will feature:

  • An overview of CalCPA’s financial literacy school program, volunteer training and free financial literacy resources and information from the California Jump$tart Coalition and other community organizations;
  • Up to three hours of free CPE for CPAs;
  • Opportunities to network with financial literacy advocates and volunteers; and
  • Free admission, which includes meals, parking and reception.

Register or learn more.

AICPA Proposes Six-point Plan to Improve Audit Performance

May 19, 2015

The AICPA released a six-point plan to improve audits that outlines enhancements in the following areas:

  • Pre-CPA Licensure: A next version of the Uniform CPA Exam designed to increase assessment of higher-order skills, such as critical thinking and professional skepticism; high school advanced placement accounting course; changes to college-level accounting education; and additional doctoral-level audit professors with practical experience
  • Standards and Ethics: Quality control standards implementation support, auditor’s report revisions, evaluation of clarified standards implementation and ethics code codification
  • CPA Learning and Support: Competency models for audit engagements, including employee benefit plan and governmental audits; competency assessment tools; targeted resources to develop competencies; and certificate programs to demonstrate competence
  • Peer Review: Increased focus on greater risk industries and areas, more significant remediation, root cause analysis, termination from the peer review program after repeat quality issues
  • Practice Monitoring of the Future: Long-term initiative for near real-time, ongoing monitoring of firm quality checks using robust technological platform.
  • Ethics Enforcement and NASBA Collaboration: More aggressive pursuit of reported deficiencies and stronger ties with the National Association of State Boards of Accountancy and state boards of accountancy.

NASBA on the FAF’s Three-year Review of the Private Company Council

May 19, 2015

The National Association of State Boards of Accountancy commented on the Financial Accounting Foundation’s three-year review of the Private Company Council with the following:

  • The PCC advisory role limitation should be avoided.
  • PCC oversight needs a strong FAF trustee champion.
  • NASBA supports the Private Company Decision-making Framework
  • NASBA believes the current structure works well and should not be changed significantly.

Following a Federal Determination for Research Credit Cases

May 19, 2015

It’s not always clear as to how to apply the FTB’s federal determination for research credit cases, especially if there was no review of the research credit at the federal level. The following examples illustrate situations where the FTB would not automatically follow federal actions for research credit cases or would need to inquire further into the credit computation:

  • Example 1: The taxpayer reported a federal research credit on their California return. The IRS audited the federal return but did not inquire about the federal research credit. Following federal is not appropriate in this scenario. There was no on-point examination of the issue.
  • Example 2: The IRS opened an examination and issued a standard information request for the research credit. No follow-up requests were sent, and no analysis or working papers were found in the IRS audit to indicate there was an examination of the research credit. The IRS did not make any adjustment to the research credit. In this instance, there was no on-point examination of the federal examination of the research credit. Following federal would not be appropriate in this scenario.
  • Example 3: The IRS opened an examination and issued the standard IDR for the research credit. The IRS audit file indicates that they evaluated the response and based on the lack of audit risk withdrew from the issue because of materiality, time and resources. In this scenario, there was an on-point examination of information and determination regarding the eligibility of the credit. Following federal would be appropriate in this example.
  • Example 4: The IRS opens an examination of years X1, X2 and X3, and adjusts the credit in all three years, but the FTB examination was for years X3 and X4. In this scenario, following federal is appropriate if the activities and expenses from the federal audit are the same or, substantially similar to, the activities and expenses claimed in the years under audit. Where the research projects reviewed by the IRS were substantially different from research projects conducted in California, the FTB may need to examine California research project activities even in the same year.

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