The accounting field has grown by leaps and bounds, thanks in part to federal legislation like the Sarbanes-Oxley Act that enacted new financial and accounting reporting requirements for public companies. Savvy business professionals are taking advantage of this trend by seeking new ways to make themselves more marketable, while opening up new career options by expanding their business degree with an accounting degree.
The growth in accounting and new educational opportunities for business professionals with non-accounting degrees mean more opportunities than ever to expand your career options with accounting, says Dr. Jim Brodzinski of The College of Mount St. Joseph.
“Many business majors who shied away from getting an accounting degree in school find out that accounting is something they deal with in their jobs anyway, so why not add flexibility and mobility to a career by expanding a business degree with accounting?” he says. “Accounting is one of today’s hottest fields and is expected to continue to grow for the foreseeable future.”
Smart Business spoke with Brodzinski about how the field of accounting has grown and what that means for business professionals who are looking to expand their career options.
Why should today’s business professional consider expanding a business degree with accounting?
Jobs! Accounting is one of those interesting areas where there always seems to be a job market. According to government statistics, the accounting field is expected to grow 16 percent to 24 percent over the next 10 years. Keep in mind that whenever the economy expands with more businesses, they all need accountants. Another key contributor to this growth is federal legislation in response to the business ethic scandals over the last few years. In particular, the Sabanes-Oxley Act has had a dramatic impact on accounting employment.
How can a business professional expand a business degree with accounting?
There are a number of ways. One is simply to take some general accounting courses to obtain more experience.
But there are also more formal programs, like what we offer at the College of Mount St. Joseph, that are designed to provide a bachelor of science degree in accounting. This requires a bachelor’s degree in business with at least one year’s worth of accounting courses, which is pretty standard for most business degrees. Students take 30 semester hours over 18 months and graduate with a bachelor of science in accounting. It gives them an opportunity to get the accounting degree, but it also gives them enough hours to sit for the CPA exam, which requires 150 semester hours of college coursework. This is a nice approach because not only do they get a lot of bang for the buck from the program, but also because it is so focused on accounting, they truly become immersed in the topic.
Many programs like the one at the Mount are targeted specifically to the working professional, offering evening classes so the program won’t interfere with a person’s professional responsibilities.
What opportunities exist for business professionals who seek career advancement in the field of accounting?
In addition to gaining an additional skill set that allows them to expand their career options at their current place of employment, there’s also a range of accounting career options including working for a large national or regional public accounting firm, management accounting, government accounting, becoming an internal auditor, starting your own private accounting and/or financial management practice. Flexibility and options are both great benefits of an accounting degree.
How has the field of accounting grown, and what does that mean for business professionals?
The most recent growth has certainly come from the changes in federal legislation with the Sarbanes-Oxley Act. However, every time the economy expands and more businesses are created, there’s a complementary need for more accountants. Additional career options have also opened up as accountants are branching out into managerial accounting, financial services and personal accounting.
Accounting is a great career choice for someone who is interested in running his or her own business. It’s also the kind of thing that can be done on the side, while maintaining a full- or part-time career elsewhere.
What does a business professional need to acquire the skills necessary for the field of accounting?
Primarily, it comes down to the necessary coursework and proper training. A business degree is a great place to start, and an accounting degree can be added at any time. Keep in mind that if you’re going into public accounting, a CPA is required along with a business degree.
JIM BRODZINSKI, Ph.D., SPHR, is a professor and chairman of the department of business administration and director of the master of science in organizational leadership program for the College of Mount St. Joseph. Reach him at (513) 244-4918 or firstname.lastname@example.org.
When Toyota and other Japanese manufacturers began establishing facilities in the Midwest in the early 1980s, they were the trailblazers. These early pioneers had to learn the differences between operating a U.S. and Japanese business, often struggling with cultural and language barriers.
Today, Japanese businesses that choose to enter the U.S. marketplace follow the many successes of companies such as Toyota. Japanese products have earned good reputations and are generally well-accepted by the U.S. population, says Mari Yamamoto Regnier, head of the Japanese Practice Group at the law firm of Barnes & Thornburg LLP.
“While the U.S. is a lucrative marketplace for many Japanese businesses, they must still learn some of the fundamental differences between operating a business in the U.S. versus in Japan. Oftentimes this comes down to legal issues that are a reflection of the differences between the Japanese and U.S. cultures,” she says.
Smart Business spoke with Regnier about the benefits for Japanese companies looking to do business in the United States, as well as the legal and cultural challenges Japanese businesses must overcome.
What are the benefits to Japanese companies doing business in the United States?
Japanese businesses need only look to the great success of Toyota to see that the U.S. can be a lucrative marketplace. Toyota recognized that the U.S. auto market was huge, even though no one was really interested in buying a Toyota back in the 1960s, when Toyota first started selling vehicles in the U.S. Yet, it established a good relationship in the U.S. market and is now growing into one of the Big Three auto manufacturers.
What are the business cultural differences Japanese businesses should be aware of?
When Japanese companies first enter the U.S. market, they often don’t understand our legal system and how business works here. A good legal partner can help Japanese companies learn the ropes by walking them through legal issues such as contracts.
In Japan, everything is done through a handshake or gentleman’s agreement. That’s obviously not how things are done in the U.S. business world, so coming to the U.S. can be a wake-up call to the Japanese, as Americans put everything in writing.
What legal concerns do Japanese businesses need to be aware of?
The first thing they’ll often do is set up a corporation and send in a key management team from Japan. But the rest of the staffing positions are generally filled by Americans, so Japanese companies must learn U.S. employment law. Dealing with American employees is a completely new area for most Japanese businesses. As a result, labor and employment law is an area where many Japanese businesses have really struggled when doing work in the U.S.
Litigation is another area of concern for Japanese businesses. Japan is not really a litigious country, so dealing with and preventing litigation can be a huge challenge to a Japanese business.
How can Japanese businesses learn about the U.S. business culture?
A lot of Japanese businesspeople have had the opportunity to live and work in the U.S. and then return home to Japan. I’m seeing a change over the last five years where many people working at the Japanese headquarters have had their own experience working in the U.S., so they have a better understanding of how things are done in the U.S. This helps to ensure that the managers who are running the offices in the U.S. have greater support and understanding from the managers who are running the corporate headquarters.
There’s also starting to be a shift from sending Japanese managers to the U.S. to run the company to using more U.S.-born managers. This has really helped with cultural understanding and has helped to Americanize Japanese companies.
What should a Japanese business consider when opening in the U.S.?
Finding the right American managers that they can trust and work with is an important key. Working with Japanese businesses is different from working with American businesses, and some people are better suited for it than others. If the Japanese businesses don’t choose American managers that they can work comfortably with, it won’t be a productive relationship.
Of course, given all the legal challenges involved in opening a Japanese business in the U.S., it’s also essential that they find the right legal partner. This means not only finding a full-service law firm that can help them with a variety of legal needs but also finding a firm that speaks the Japanese language and understands the cultural nuances.
Mari Yamamoto Regnier is a partner at Barnes & Thornburg LLP. She leads the firm’s Japanese Practice Group. Reach Regnier at (312) 214-8335 or email@example.com.
When considering hiring a co-op student, it’s important that businesses not only make sure they have appropriate work available for the number of hours the student will be employed, but also the necessary supervisory and administrative oversight to ensure a positive experience, says Maggie Davis, director of the Career & Experiential Education Center at the College of Mount St. Joseph.
“When properly implemented, co-ops can be a win-win for both the student and the employer,” she says.
Smart Business spoke with Davis about the benefits of hiring co-op students from a college as well as tips to ensure businesses and students both gain something from the experience.
How do employers benefit from hiring co-op students from a college?
Many businesses use student co-ops as an important tool in their recruitment and hiring strategy, as a way to fill full- or part-time employment needs. Businesses that choose to make an employment offer to the co-op student upon graduation find these students are able to jump right into their jobs after completing a co-op because they know what is expected of them. Co-ops are particularly helpful to a business that is looking to fill jobs in difficult-to-find areas such as accounting and nursing.
Of course, many businesses also appreciate that co-ops are a less-expensive employment alternative as student wages are typically lower, and there’s usually no expectation or need to provide students with benefits.
Last, businesses who hire co-op students often find that students bring new skills and techniques, such as knowledge of new software programs, that the employer isn’t familiar with.
What support does an employer get from the college?
When considering a cooperative education program, employers should look for schools that offer screening to meet that employer’s specifications and needs. This usually means a minimum grade point average and completion of specific coursework relevant to the employer’s requirements.
Most cooperative education programs also provide employers with communication and human resources assistance to help communicate things like pay, benefits and work hours, as well as tools for evaluating the student’s performance.
How should an employer prepare for their co-op student?
Preparation really is the key to a successful co-op experience. Employers need to ask themselves a few questions before hiring a co-op student, such as how many hours per week will the student will work? What is your budget? Who will supervise the student’s work?
It’s very important to give some thought to who will be responsible for supervising the student and what type of work the student will be doing. Co-ops are meant to be a learning experience for the students, so employers should be sure the work involves things related to the student’s chosen field not just making copies. The best co-op programs provide for progressive learning over the course of the student’s employment.
Putting a management system in place to work with the student, providing regular constructive feedback and a meaningful evaluation will go a long way in ensuring a successful co-op experience for both the student and the employer.
How can employers maximize their participation in the co-op program?
In general, it’s important to keep in mind that employers are actually serving as an off-campus teacher. Of course, this is an employment decision and employers can expect their co-op students to perform necessary work tasks like any other employee, but anyone interested in hiring a co-op student should remember that this is a learning opportunity as well as an employment opportunity.
I highly recommend that employers work closely with the school that’s providing the co-op student. In many cases, employers can help shape the school curriculum to ensure what’s being taught in the classroom accurately reflects what a student will encounter in the workplace. Often, employers have the opportunity to help influence the curriculum, which hopefully results in better-prepared employees.
Maggie Davis is director of the Career & Experiential Education Center at the College of Mount St. Joseph. The Mount has had cooperative education as part of the bachelor’s degree programs for 22 years, and was recognized by the Ohio Cooperative Education Association for program excellence in 2004. Reach Davis at (513) 244-4824 or firstname.lastname@example.org.
It’s not uncommon for commercial leases (including standard office and shopping center lease agreements) in the Atlanta area to stretch to 30 pages or more. Filled with legalese, leases are typically drafted to favor the landlord, but with a little know-how, savvy businesses can level the playing field when negotiating a commercial lease.
Tenants should read the lease and be mindful of their exposure to liability, says Maria Maistrellis, a partner at Gambrell & Stolz LLP.
“Tenants may not have the economic clout to rewrite much of the lease, but at a minimum they need to identify those issues that are
deal-breakers,” she says. “They also need to understand their exposure to liability, such as the landlord’s acceleration of the full amount of rent due under the lease upon tenant’s default.”
Smart Business spoke with Maistrellis about commercial leases and how businesses should negotiate them.
How can a business limit its exposure to liability when negotiating a lease?
Tenants should make sure that they receive written notice and an opportunity to cure any monetary or nonmonetary default. Although difficult to obtain, if a business can also negotiate that the landlord must mitigate its damages, this will assist in limiting the tenant’s liability. In Georgia, the lease must expressly provide for landlord’s duty of mitigation for the tenant to have the right to raise this as a defense.
How should a business negotiate the payment of common area maintenance fees?
The tenant is usually required to pay a proportionate share of expenses for maintenance of the common areas of the building (which may include real estate taxes and costs of comprehensive casualty and liability insurance coverage) based upon the ratio of the square footage being leased and that of the total leaseable square footage to all tenants (‘CAM’). If a tenant leases 10 percent of the building or shopping center but the other 90 percent is vacant, he’ll want to make sure that the formula is based on the total that could be leased (not the total that is actually leased) or he could get stuck paying 100 percent of the common maintenance costs. Also, tenants should be sure to measure the actual space they will be occupying so the CAM is based upon the usable square footage and not the total rentable square footage if not so intended.
How can a business define the expenses to be included in the formula for CAM and cap the pass-through?
Some landlords will try to include in CAM, as pass-through to the tenant, a very broad range of expenses, including capital expenditures, like replacing the roof or repairing any structural defects, or restoring casualty damages to the building or shopping center not covered by insurance proceeds.
A tenant has two alternatives. He can define the expenditures specifically excluding capital expenses and other unfair expenses, which can be a very grueling negotiation, or he can cap the annual expenses excluding the costs of real estate taxes and insurance, which would not be capped.
Also, try for a cap on any increase every 12 months based upon a percentage of the prior year’s CAM. Tenants should make sure that the CAM is adjusted at the end of each 12-month period based upon the actual expenditures made by the landlord with a credit back to the tenant for any overpayment; otherwise the landlord receives a windfall. Tenants should also negotiate the right to review and audit the landlord’s books with regard to CAM.
How can a business avoid giving the landlord a personal guaranty for the tenant’s obligations and, if possible, provide for a buy-out of the lease?
I recommend signing the lease as a limited liability entity such as a corporation, limited liability company or limited partnership and try to avoid giving any personal guaranty. If this is a new business without a track record, the landlord may insist on a personal guaranty.
Also, tenants should not grant the landlord a security interest in furnishings, inventory, trade fixtures, general equipment and machinery. A security deposit for the first and last month’s rent should suffice.
If possible, tenants should negotiate a buy-out of the lease in the event the tenant’s business is not feasible or the tenant desires to terminate. This is especially important with a new business with no proven track record where there is a personal guaranty. A buyout provides that the tenant can pay a specific amount of rent (three to six months rent, for example) for the election of terminating the lease.
MARIA MAISTRELLIS is a partner in the Commercial Real Estate Practice at Gambrell & Stolz LLP. Reach her at (404) 223-2217 or email@example.com.
Health care has become a significant economic engine of the U.S. economy, closing in on 16 percent of the Gross Domestic Product. In Akron alone, the largest area employers are in the health care industry, which employs more than 14,000 people who live and spend money locally, creating a significant spin-off from this segment of the economy.
However the great paradox is that health care is also a significant and growing cost of doing business, according to Alan Bleyer, president and CEO of Akron General Health System. “Health insurance premiums doubled from 2000 to 2006, with the average employee premium rising from $5,000 to $11,000,” he says. “We all have a vested interest in doing whatever we can to stem the tide of rising health care costs.”
Smart Business spoke with Bleyer about the rising costs of health care and what employers can do to control their costs.
What drives health care costs?
A number of things, but probably the two most significant factors are the aging of the population and the explosion in the use of health care technology.
The aging of the population is like a tsunami that’s building steam and becoming bigger and more powerful, and we are seeing the early waves of that tsunami reaching shore. Our consumption of health care services increases dramatically as we age and we are experiencing the early impact of this increase, which results in higher costs.
The use of expensive health care technology has also grown exponentially in the last 10 years. We have many exciting things now that didn’t exist when most physicians were in medical school. While that’s gone a long way in improving health and quality of life, there are cost implications to the use of technology.
How do health care costs affect employers and the local economy?
Employers today are competing in the world marketplace, but many companies around the world don’t provide any health care coverage for employees. Therefore, the coverage that employers provide as a pre-tax benefit to employees puts them at a competitive disadvantage in some markets. This issue really comes to bear in the manufacturing industry where products can be made at a lower cost overseas, resulting in a loss of U.S. jobs.
What can businesses do to decrease their health care costs?
Focusing on prevention is probably the most significant thing, because it can keep employees healthy and working. Prevention won’t solve all of the health care cost problems, but if employees exercise and focus on nutrition and eliminate the use of tobacco products, employers will realize a reduction in their health care costs.
Can cost savings outweigh the additional costs associated with preventive health programs?
Investing money on the front end by investing in wellness programs or benefits that encourage healthy lifestyles can slow down that annual increase in health insurance and related costs. Our own experience as an employer that has focused on wellness, early detection and prevention has led to a significant slowdown in our rising annual health care expenditures. We practice what we preach, and the results speak for themselves.
How can employers encourage employees to live healthier lives?
Employers must get on board with encouraging their employees to adopt healthy lifestyles. Instead of just paying for health insurance coverage, employers should also include benefits such as subsidized memberships in health and wellness programs that focus on prevention through exercise and changes in unhealthy lifestyles.
Like many employers, Akron General Health System has implemented several employee health care prevention and wellness initiatives. One of the most exciting is the opening of a wellness center for our employees at the hospital that focuses on prevention through exercise. Other employers can adopt these same strategies, including providing on-site fitness centers and access to wellness programs.
I also believe it’s essential that the employee participate in paying for his or her own care. If the employer pays for everything, the employee will see it as a free benefit. Every single one of us must share in the costs of health care, and this can be done not only by charging employees a premium for their health care benefits, but also by instituting co-pays and deductibles. Once employees have a better understanding of the costs associated with their health care, they are empowered to make better decisions and to become active participants in managing those costs.
ALAN BLEYER is president and CEO of Akron General Health System. Reach him at (330) 344-7679 or firstname.lastname@example.org.
When a litigation situation arises, many people are ill prepared to deal with the long and tedious legal process. As a result, basic misunderstandings and mistakes by clients can have a detrimental impact on their case.
A good attorney will help a client understand the process and why things are done a certain way, yet uncertainties and confusion may still exist, says Jennifer G. Cooper, a partner in the Litigation Practice at Gambrell & Stolz LLP.
“Most business people get thrown into litigation with little or no previous experience, which can result in misunderstandings and mistakes,” she says. “Understanding the legal process and clearly communicating with your attorney can go a long way in helping your legal counsel achieve the best possible result.”
Smart Business asked Cooper what tips she has for people who will be involved in litigation.
How can a client help the attorney get the
best possible result?
The most important thing is communication, which is essential to minimize any surprises during litigation. It’s really important for clients to communicate what they think about the case, their expectations and things they don’t understand. It’s important that clients understand both the substance of the case and the litigation process.
It’s also really important for clients to be responsive in a timely way to their attorneys’ needs. It’s not uncommon to go for months without any significant activity in a case. However, when your attorney does need information or action from you within a short period of time usually to meet court-imposed deadlines it is important that you respond in a timely fashion. This is difficult for many clients to understand. In the midst of also running their business, they may find it difficult to meet a deadline. Nonetheless, failing to respond in a timely manner can have a negative impact on your case.
Lastly, clients should always be truthful and forthcoming with their attorney. Surprises can seriously undermine your case. Remember, your attorney is your advocate and can deal with the good and the bad in your case, but he or she must have the time and resources to do so.
What are the biggest mistakes clients make
when they are involved in litigation?
Credibility is probably the most important thing in litigation. Ultimately, a judge or jury is going to have to decide which side it believes, so the worst thing a client can do is compromise his or her credibility. This can be done by not being truthful, not meeting deadlines and taking the matter too personally.
Another big mistake is not clearly quantifying to your attorney what your goal is at the outset of the case. Goals can vary from ‘take no prisoners, we must win at all costs’ to ‘do whatever you have to do to make this thing go away so I can get back to focusing on my business.’ It’s important that your attorney understand your goals in order to meet your expectations. It is also important to revisit and, if necessary, revise your goals throughout the case.
How does the advice correspond to whether
the client has filed the lawsuit or is the party
While your goals and expectations may be different, depending on whether you are the party being sued or the party filing the lawsuit, it’s still important to clearly communicate your expectations and goals from the beginning of the case and to openly and honestly communicate with your attorney throughout the litigation process.
How can clients control costs in litigation?
The first thing they can do is make sure they actually must pay the attorney fees. Clients should always consult with their insurance professional to determine whether or not they have coverage for the claim. Even if they don’t have insurance to pay a judgment in a lawsuit, they may have insurance to at least cover litigation costs.
If the lawsuit is based on a contract, they should look closely at the contract to see if the other party might have an obligation to pay any fees in the event of a lawsuit, and to make sure they are not responsible for the other party’s fees.
Lastly, clients should discuss all options for fee arrangements with their attorney. Most attorneys are willing to be creative with payment options. Some ways to structure attorney fees to meet the financial needs of a client are contingency fees, annual retainers, reducing the hourly rate in exchange for a contingent bonus at the conclusion of a successful case, and ‘blended’ rates for partners and associates. Don’t be afraid to suggest other options. Some lawyers even agree to a discount for clients who pay their bills early.
JENNIFER G. COOPER is a partner in the Litigation Practice at Gambrell & Stolz LLP, concentrating in the areas of toxic and mass torts, product liability and commercial litigation. Reach her at (404) 223-2201 or email@example.com.
As a result of this uncertainty, many people who purchased life insurance policies as a means to pay their estate taxes are left wondering if they should continue paying premiums if there’s a chance the estate tax may be repealed, says Scott Borsack a partner in the Tax, Trust and Estates Practice Ggroup at White and Williams LLP.
“Regardless of what happens to the federal estate tax, people should not cancel life insurance policies just because they think the estate tax will be repealed,” he says. “Besides the uncertainty of whether of not the tax will actually be repealed, there are plenty of reasons to keep those policies in force.”
Smart Business spoke with Borsack about the reasons for obtaining life insurance and how the estate tax discussions affect life insurance policies.
Why should executives obtain life insurance?
Life insurance allows those who survive the insured to continue to live in the manner to which they have become accustomed. In cases where an estate tax may be owed upon the death of the insured, life insurance allows the survivors to pay the tax liability in a timely manner. But the most often overlooked aspect of life insurance is its use in sound financial planning. The cash value which grows tax free in a life insurance policy can also be accessed tax-free through a policy loan that does not have to be paid back until the death of the insured.
How much life insurance do most executives need?
Financial advisers have complex formulas that consider a number of factors, including age, savings, earning capacity and future needs, including college tuition and mortgage payments. My own rule of thumb is that a family of four with minimal debt and living an average lifestyle should have a minimum of $1 million in insurance coverage on the life of the primary wage earner.
What are the prospects for reform to the current federal estate tax?
Over the last five years, a number of attempts have failed to permanently repeal the estate tax, as well as the most recent attempt to permanently exempt $5 million for each taxpayer from the federal estate tax. However, we probably won’t see estate tax reform come back until after this year’s election. Having said all that, the prospects for further change are pretty good, but we just don’t know exactly what those changes are going to be.
What are the risks of canceling an active life insurance policy?
In the midst of all the discussion of changes to the estate tax, many people are wondering why they should continue paying their premiums if the tax is going to be substantially changed. But people should think very carefully before letting an active policy lapse. Many people take out a life insurance policy when they are healthy at substantially reduced premiums. However, over time, health may change and that perfectly good policy, which the insured allowed to lapse, may not be replaceable, or if it can be repurchased, the new premiums may be prohibitively expensive.
Even those who purchased life insurance solely as a means to pay for their estate tax should consider maintaining that policy, regardless of inevitable changes to the tax law, until they know for sure just what those changes are going to be.
How does the estate tax affect the way life insurance policies are owned?
One thing that is often overlooked is how the life insurance policy should be owned. Everyone assumes that death benefits paid under the insurance policy will not be subject to the estate tax; however, that’s only true if the beneficiary is the surviving spouse. But what happens if both parents die together, or there is no surviving spouse? I generally recommend that insurance policies with a death benefit in excess of $1 million be put into a life insurance trust that protects the death benefit from the estate tax and allows premium payments to be made gift tax-free.
SCOTT P. BORSACK is a partner in the Tax, Trust and Estates Practice Group of the Business Department at White and Williams LLP. Reach him at (215) 864-7048 or firstname.lastname@example.org.
“Companies must take appropriate steps to ensure they are capable of complying with the preservation, organization and storage of electronically stored information,” says Kohn. “To prevent problems in discovery, a business should maintain documents that are relevant to the litigation in their native form, and create a document retention policy to ensure that electronically stored information is not inadvertently destroyed.”
Smart Business spoke with Kohn about the changes in electronic discovery laws and how these laws will affect businesses.
What is electronically stored information and metadata?
Electronically stored information, or ESI, is information that is stored in a medium from which can be reviewed and examined, and includes any type of information stored electronically, such as e-mails, Word documents, and excel spreadsheets. Information and files must be stored in electronic form to qualify as ESI under the new discovery rules.
Metadata is embedded data in electronic format that details the history, tracking, and management of an electronic document. It is typically encoded within the file, created without the author’s knowledge, and is usually invisible unless someone specifically uses tools and commands to access it. For example, in an e-mail, metadata will include such things as the route the e-mail message traveled, the sender’s domain, any delays in transmittal, and the history of e-mail being read, sent, and forwarded.
How have the courts dealt with electronic discovery?
The Sedona Conference in 2005 gathered attorneys and judges together to discuss how to incorporate electronically stored information into the discovery process. The Sedona Conference working guidelines concluded: (1) electronic data and documents were potentially discoverable, and therefore organizations must properly preserve electronic data and documents that can reasonably be anticipated to be relevant to litigation, (2) parties should confer throughout the discovery process regarding the preservation and production of electronic data and documents at issue in the litigation, and agree to the scope of each party’s responsibilities and costs for production and (3) the parties’ obligation to preserve and retain electronic data and documents that may be relevant to a pending or threatened litigation must be reasonable.
Courts have followed these principles in deciding whether to conduct discovery of electronically stored information in its native form with metadata or to allow the parties to produce such ESI in an altered version, eliminating or controlling the discovery of the embedded data to save costs and reduce irrelevant production of information.
What obligations do businesses have to preserve electronically stored information and metadata?
First, a business should identify any possible threats of litigation or pending litigation and issue a hold on all deletion or destruction of electronically stored information. Second, even before suspending document destruction, a business should create a data system to preserve electronically stored information in its native form, including all metadata and embedded information. This management system must include e-mails, instant messenger, Windows programs, networks, deleted files, home and outside computers that access the business, handheld devices, and other technology that uses electronic data. Third, a business must directly instruct its employees on the preservation of ESI, including relevant, active files that may lead to future litigation. Fourth, a business should organize its management system to ensure that data and files stored are identifiable in searches, and create inventories of ESI stored in its system. Finally, a business may want to incorporate a system to save and store both the ESI in native form and a clean version without metadata.
What happens if a company fails to comply with the new laws?
When a business fails to comply with electronic discovery, or cannot show that it has made a routine, good faith, reasonable effort to preserve and produce electronically stored information in its native form, a court may impose sanctions, including monetary penalties and attorneys’ fees, witness exclusion, jury instructions limiting claims, default, or criminal penalties. Courts allow such sanctions for “spoliation,” which is the destruction or significant alteration of evidence, and the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.
LAUREN M. KOHN is an associate at Gambrell & Stolz LLP. Reach her at email@example.com or (404) 223-2216.
“Many smaller companies don’t have the in-house expertise to design and assess their internal control procedures, so they have to engage outside consultants to assist them,” he says. “Often smaller companies operate informally and their financial controls, while effective for companies of their size, are not well documented.”
Smart Business spoke with Martinez about the requirements of the Sarbanes-Oxley Act on smaller public companies and what those companies should be doing in the internal controls area.
In your practice, you advise public companies on their obligations under the securities laws. What issues do smaller public companies face under Sarbanes-Oxley?
There are a number of provisions of Sarbanes-Oxley that require companies to implement procedures that most people acknowledge are good corporate governance practices. However, the most controversial provision is Section 404, requiring public companies to certify their internal financial controls are effective in providing reasonable assurance that transactions are properly authorized and recorded according to applicable accounting rules, and that assets are safeguarded from unauthorized use. A company’s auditors are also required to separately audit management’s certification and provide their own conclusions as to the effectiveness of the company’s internal controls. In addition to the out-of-pocket costs incurred when hiring outside consultants and auditors to comply with these requirements, companies have to devote a significant number of employee man-hours to handle this process.
Is the SEC doing anything to reduce the burdens on smaller public companies in this area?
There has been a lot of discussion about how to resolve some of these issues and relieve smaller companies of the burdens in this area. On several occasions, the SEC has delayed the application of these internal control requirements for smaller companies, with the current requirement to comply starting with their 2007 fiscal year. Another delay may be forthcoming.
What should small public companies be doing now in the internal controls area?
Because of postponements by the SEC, many companies have put off the cost and effort of assessing and improving their internal controls, most hoping that these requirements will eventually be rescinded. However, despite the delays, it appears the requirement to certify and audit the company’s internal controls will not go away. Therefore, smaller public companies should not delay their plans to assess and improve their existing controls and to implement new internal controls to meet the SOX 404 requirements.
Companies should take advantage of the available time to adopt a well-planned 404 compliance strategy that factors in the need for greater operational efficiencies and allows them sufficient time to test and operate their improved systems to compile ample evidence of the effective operation of their improved controls. The conventional wisdom is that companies should start developing their plan for compliance 12 to 18 months before the requirement kicks in.
What are the consequences of failing your SOX 404 audit?
If it is determined that a ‘material weakness’ exists in a company’s internal controls, then the company and its auditors are required to conclude that the company’s internal controls are not effective and the company is required to publicly disclose these facts. Such disclosures may cause an adverse reaction by the investment community, often leading to a decline in share price. In addition, the lack of effective controls may result in the company’s auditors being reluctant to issue their audit report on the company’s financial statements, which in turn could lead to the delisting of the company’s stock.
From a liability standpoint, while the disclosure of ineffective internal controls in and of itself may not be cause for a law suit, any resulting misstatements in the company’s financial statements due to ineffective controls can lead to shareholder litigation and action by the SEC against the company and its officers and directors.
Finally, the conclusion that the company’s internal controls were ineffective at year-end could also raise questions as to whether the CEO’s and CFO’s prior quarterly certifications as to effective disclosure controls were accurate when made.
The prudent action is to begin preparing now for the day that your company is required to fully comply with SOX, especially Section 404.
JOSEPH G. MARTINEZ joined the Business & Technology Team of Procopio, Cory, Hargreaves & Savitch LLP after 12 years in private practice in two Los Angeles law firms, followed by seven years as in-house general counsel of a San Diego public technology company. Reach him at (760) 496-0778 or firstname.lastname@example.org.
“We’re seeing a growing trend of executives seeking assistance from their CPA firm for estate planning, asset protection and other wealth management needs,” he says. “A CPA firm is able to provide a much higher level of consulting on all of these financial concerns, not just focusing on what kind of returns an executive has received on their investments.”
Smart Business spoke with Rein about the advantages of using a CPA firm to assist with wealth management strategies and some of the most popular strategies executives should be familiar with.
How can executives benefit from using a CPA firm for their wealth management needs?
Focusing on wealth management is unique for most accounting firms, but from a client’s standpoint, having discussions about overall wealth management, including asset and estate planning protection, investments and managing income taxes makes a lot of sense.
If someone has already been using a CPA to help with tax matters, then the CPA already has a good fundamental understanding of the client’s goals and financial ambitions. The disciplines within a CPA firm can be brought to bear, including tax, asset protection and estate planning. Because these services are integrated within the firm, the overall process is much more seamless than if the client were utilizing the services of several independent consultants, each assisting with just one piece of the overall wealth management strategy.
What are some key components of wealth management that executives should consider?
Executives should consider a variety of wealth management strategies including income and estate tax planning, asset protection, investment management and risk management, which simply means covering potential loss of valuable assets through the use of insurance.
How can executives best protect their assets?
There are a few basic vehicles that most executives are probably already aware of, such as using exempted assets like your personal residence, qualified retirement plans, annuities and life insurance to accumulate wealth. More complicated asset protection strategies include creating entities like corporations, limited partnerships or LLCs to hold assets. Ultra-wealthy individuals might consider using international and offshore trusts.
How can an executive find the right partner to assist with developing and implementing wealth management strategies?
While the size of the firm plays a role, executives should really consider the firm’s depth to ensure the firm has experience in each of these key wealth management areas. It’s very difficult for any individual to be an expert in everything, so a firm with several individuals with expertise in these areas is important.
Reputation in the community and past experience are also important considerations. Executives should ask for referrals from other colleagues and professionals with comparable financial concerns. I also highly recommend that executives conduct personal interviews with the firms they are considering hiring to find the right fit.
Lastly, it’s important to work with a firm that is independent in its investment advice, meaning they don’t have a financial incentive affiliated with a specific investment organization.
How do executives benefit from working with a CPA firm to develop and implement their wealth management strategies?
Traditionally a CPA firm will act as an independent advisor, not tied to a particular investment firm or mutual fund company that may offer a financial incentive for selling their products. Rather than receiving compensation from the company selling the investment products, CPA firms who do this kind of work are typically compensated by the client so we can offer the best, most appropriate products without any concern of how we’re being compensated or lack of independence. This increases the probability that the advisor is providing advice that is in the client’s best interests, rather than advice that is meant to provide more compensation to the advisor.
TOM REIN, CPA, PFS is a partner in charge of financial services with Whitley Penn LLP. Reach him at (817) 258-9160 or email@example.com.