Minutes of:

New York State Society of Certified Public Accountants (NYSSCPA) Board of Directors Meeting

Date & Time:

Thursday, April 5, 2007, 9:05 a.m. to 4:10 p.m.

Location:

3 Park Avenue, 19th Floor, New York, New York

Presiding Officer:

Thomas E. Riley, President

NYSSCPA Board Members Present:

David A. Lifson, President-Elect
Sharon S. Fierstein, Vice President
Richard E. Piluso, Vice President
Robert E. Sohr, Vice President
Mark Ellis, Secretary
Neville Grusd, Treasurer
Deborah L. Bailey-Browne
Edward L. Arcara
Thomas P. Casey
Debbie A. Cutler
Anthony G. Duffy
David Evangelista
Joseph M. Falbo, Jr.
Dr. Myrna M. Fischman
Daniel M. Fordham
Phillip E. Goldstein
Don A. Kiamie
Lauren L. Kincaid
Stephen F. Langowski

John J. Lauchert, Jr.
Kevin Leifer
Elliot A. Lesser
Beatrix G. McKane
Mark L. Meinberg
Ian M. Nelson
Jason M. Palmer
Robert A. Pryba, Jr.
Robert T. Quarte
Judith I. Seidman
C. Daniel Stubbs, Jr.
Anthony J. Tanzi
Edward J. Torres
Liren Wei
Ellen L. Williams
Margaret A. Wood
Louis Grumet, Executive Director

NYSSCPA Board Members Absent:

Scott Hotalen
Howard B. Lorch

Richard Zerah

Staff Present:

Suvro C.K. Banerjee
Joanne S. Barry
Benjamin Kaplan
Mary-Jo Kranacher
Craig Mandelbaum
Ernest J. Markezin

Dennis O’Leary
William J. Pape
Patrick Payano
Paul L. Sinegal
James A. Woehlke

B07 – B – 0
Call to Order

President Thomas E. Riley noted that a quorum was present and called the meeting to order at 9:05 a.m. Mr. Riley then designated Mr. Lifson as Acting Secretary until the arrival of Secretary Mark Ellis.

B07 – A– 1
Minutes

a. Approval of Minutes of December 7, 2006, Meeting

Mr. Riley asked Board members if they had any changes or comments to the December 7, 2006, Board of Directors meeting minutes. There being none, Mr. Piluso moved to approve the minutes as presented, and Mr. Lesser seconded the motion. The motion passed unanimously.

b. Approval of Minutes of January 19, 2007, Board of Directors Conference Call

Mr. Riley asked Board members if they had any changes or comments to the January 19, 2007, Board of Directors conference call minutes. There being none, Ms. Fierstein moved to approve the minutes as presented, and Mr. Grusd seconded the motion. The motion passed unanimously.

c. Minutes of February 7, 2007, Executive Committee Meeting for Information Only

For information, Mr. Riley referred Board members to the draft minutes of the February 7, 2007, Executive Committee meeting, which were included in the agenda materials.

a. SET Tax Update

Mr. Riley reported that Society representatives met with Eric Solomon, Assistant Secretary for Tax Policy at the Department of the Treasury, to discuss the SET tax proposal. Mr. Solomon was well versed, interested and made informative queries with respect to the SET Tax. Mr. Riley reported that Society representatives met with the Legislative Director for Congressman Charles Rangel, Chairman of the House Ways and Means Committee, to discuss the SET Tax as well. Mr. Riley noted that Mr. Lifson testified about the alternative minimum tax (AMT) before the House Subcommittee on Select Revenue Measures.

b. Peer Review Update

Mr. Riley introduced David Moynihan, chair of the Peer Review Committee. Mr. Moynihan provided an overview of the AICPA peer review program, reminding the Board that the Society received a significant amount of criticism in the 2006 oversight review by the AICPA. As a result, the Society had requested an accelerated follow-up oversight review from the AICPA, which had been set for July. Mr. Moynihan expected to see a significant improvement. Following the AICPA’s oversight, the Society had hired independent contractors to train staff and committee members in the best practices of peer review program administration. Mr. Moynihan noted that the twenty-five members of the Committee dedicate a significant amount of volunteer effort to the peer review program; however, he was not satisfied with the turn-around time on peer review reports.

A contributing factor was the peer reviewers themselves not following standards.
Mr. Moynihan outlined a modified structure for the Peer Review Committee. A Peer Review Administrative Committee (AC), comprised of ten members within the Peer Review Committee, had been formed to improve the timeliness of the process. He expected that the AC would meet quarterly and the full committee would meet two additional times, coinciding with two of the AC meetings annually. He reminded the Board that the Committee reviewed approximately six hundred peer review reports annually. Also, he noted that Mark Rachleff, who had been a full-time member of the staff, then performed technical reviews on a contract basis, had temporarily agreed to accept a full-time position as the Peer Review Technical Manager in the wake of Mr. Banerjee’s transfer to acting controller.

Mr. Moynihan also noted that the Committee had been moving towards a paperless and web-based environment. These changes were expected to result in a cost savings. Mr. Riley and Mr. Quarte recognized that Mr. Moynihan faced many challenges and thanked him for his efforts and hard work.

c. 2007 Annual Election & Dinner Journal Ads for the Benefit of COAP

Mr. Riley noted that a record, nearly $100,000, had been pledged to benefit the Career Opportunities in the Accounting Profession (COAP) program in connection with the annual commemorative journal for the Annual Election Dinner.

d. Awards Committee Report

Mr. Riley announced that the Awards Committee selected Edward A. Weinstein as the 2006-2007 Society Distinguished Service Award honoree. A discussion ensued with respect to the awards nominations process. Mr. Riley stated that the Society should make extra efforts to attain new and additional nominees.

e. Other

Mr. Riley informed the Board that Mr. Cheung resigned as Controller and that Mr. Banerjee would serve as the Acting Controller.

a. Quality Enhancement Policy Committee (QEPC)

Mr. Lifson addressed the white paper on peer review stating that it had been misunderstood. Mr. Lifson believed that the misunderstanding was rooted in the belief that the white paper would necessitate two peer reviews, when in fact only one peer review would be required. Mr. Lifson stated that he had formed a task force to address implementation issues raised by the white paper on peer review. He added that the QEPC was working on education white papers addressing pre-service (pre-licensure) education and in-service (continuing) education.

b. 2007 Leadership Conference

Mr. Lifson reminded Board members that the 2007 NYSSCPA Leadership Conference was scheduled for July 8, 9, and 10, 2007, at the Gideon Putnam Hotel, in Saratoga Springs, New York. He encouraged members to attend and to view the conference as an opportunity to network with the current and future leaders of the Society and FAE.

a. Chapters Update

Vice President Sharon Sabba Fierstein reported that no monthly calls were held with the chapters during busy season.

b. Recent Society Comments

Mr. Sohr summarized Society comments issued since his last report as follows:

• Comments submitted to FASB by the NYSSCPA Financial Accounting Standards Committee, chaired by Margaret Wood, regarding FASB Exposure Draft – Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133 (Filed Reference No. 1510-100), dated March 2, 2007; John J. McEnerney, principal drafter.
• Comments submitted to Securities and Exchange Commission by the NYSSCPA SEC Practice Committee, chaired by Mitchell Mertz, regarding Release Nos. 33-8762; 34-54976 – Proposed Interpretive Guidance for Management’s Report on Internal Control Over Financial Reporting, dated February 27, 2007; Anthony S. Chan, principal drafter.
• Comments submitted to Public Company Accounting Oversight Board by the NYSSCPA Auditing Standards and Procedures Committee, chaired by Robert W. Berliner, regarding Proposed Auditing Standard - An Audit of Internal Control over Financial Reporting that is Integrated with an Audit of Financial Statements, and Related Other Proposals, PCAOB Release No. 2006-007, PCAOB rulemaking Docket Matter No. 021, dated February 23, 2007; Robert W. Berliner, Anthony S. Chan, Jonathan Elmi, Mitchell Mertz and Richard T. Van Osten, principal drafters.
• Comments submitted to Securities and Exchange Commission by the NYSSCPA SEC Practice Committee, chaired by Mitchell Mertz, regarding Release No. 34-55005 – [International series Release No. 1300; File No. S7-12-05] Termination of a Foreign Private Issuer's Registration of a Class of Securities Under Section 12(G) and Duty to File Reports Under Section 13(A) or 15(D) of the Securities Exchange Act of 1934, dated February 12, 2007, Robert E. Sohr, principal drafter.
• Comments submitted to FASB by the NYSSCPA Financial Accounting Standards Committee, chaired by Margaret Wood and NYSSCPA Not-for-Profit Organizations Committee, chaired by Allan M. Blum, regarding FASB Exposure Draft – Proposed Statement of financial Accounting Standards Not-for-Profit Organizations: Mergers and Acquisitions, dated January 29, 2007, Sharon Sabba Fierstein, Stephan R. Mueller, Mark I. Mycio, Margaret A. Wood, Allan M. Blum, Allen L. Fetterman and Jeffrey R. Haber, principal drafters.
• Comments submitted to FASB by the NYSSCPA Financial Accounting Standards Committee, chaired by Margaret Wood and NYSSCPA Not-for-Profit Organizations Committee, chaired by Allan M. Blum, regarding FASB Exposure Draft – Proposed Statement of financial Accounting Standards Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition, dated January 29, 2007; Sharon Sabba Fierstein, Stephan R. Mueller, Mark I. Mycio, Margaret A. Wood, Allan M. Blum, Allen L. Fetterman and Jeffrey R. Haber, principal drafters.

Mr. Sohr reported that two additional comment letters regarding tax issues were pending. Mr. Riley commended the committees and authors for their work.

Financial Statements for eight months ending January 31, 2007

Mr. Grusd reported on the financial statements for the eight months ending January 31, 2007. Society net income was $620,000, which was $49,000 ahead of budget but $318,000 behind the figure reported for the same period in the prior year. FAE net income was $120,000, which was $27,000 better than the budgeted figure and $295,000 more than reported at the same time last year. Combined NYSSCPA and FAE net income stood at $740,000 as compared to $763,000 reported for the same period in the previous year. Overall, net income exceeded budget by $77,000.

Mr. Grusd emphasized that no contribution was required from the Society to FAE through January 31, 2007, though he reminded the Board that a contribution to FAE of 492,000 had been budgeted for the current fiscal year.

a. Committees Update

Secretary Mark Ellis referred Board members to the highlights of the Secretary’s report, which were included in the agenda materials.

b. Election of Board Members and Officers

Mr. Ellis announced that the Annual Election Meeting of The New York State Society of Certified Public Accountants would be held at the Hilton New York Hotel, 1335 Avenue of the Americas, between 53rd and 54th Streets, New York City, May 17, 2007, at approximately 6:00 p.m. At the meeting, an election would be held to determine who would serve as the officers for the 2007-2008 fiscal year. Also, ten directors would be elected to serve for three-year terms. The 2006-2007 Nominating Committee had nominated the following persons to fill the positions indicated:

Officers:

• Sharon Sabba Fierstein, President-Elect
• Rosemarie A. Giovinazzo-Barnickel, Vice President
• John J. Lauchert, Vice President
• Edward J. Torres, Vice President
• Mark Ellis, Secretary
• Richard E. Piluso, Treasurer

Directors

• Scott M. Adair
• Susan M. Barossi
• Thomas Boyd
• Robert L. Goecks
• David R. Herman
• Martha A. Jaeckle
• Suzanne M. Jensen
• Gail M. Kinsella
• Ita M. Rahilly
• Thomas M. VanHatten

In addition, the Society received petitions with sufficient signatures to enter into nomination Raymond M. Nowicki for the office of President-Elect.

He noted that proxy forms would be mailed to all CPA members approximately April 10.

The presentation of candidates’ biographical information and in particular the views of the two candidates for President-Elect were being presented in accordance with the direction given by the Board in December.

a. Legislative and Regulatory Update

Mr. Grumet provided a summary of proposed legislation to establish consumer protections regarding refund anticipation loans and to require registration of tax preparers. A motion was made by Mr. Lifson and seconded by Mr. Lesser that the Society should support an exemption for CPAs from any registration requirement for tax return preparers. The motion passed unanimously.

With respect to enhanced consumer protection regarding refund anticipation loans, a motion was made by Mr. Lifson, and seconded by Mr. Falbo, that the Society should support legislation requiring all tax preparers, including CPAs, who offer refund anticipation loans to be registered with the State. The motion passed unanimously.

Mr. Grumet also summarized a bill to allow design professional firms (architects, engineers, land surveyors and landscape architects) to have up to 25% ownership interests in their professional corporations held by non-professionals. He noted that CPA firms in New York State are required to have 100% CPA ownership though regulations permit CPA firms to share up to 35% of their income with non-CPAs. A provision to allow up to 49% non-CPA ownership of a CPA firm had been dropped from New York State Senator LaValle’s accountancy reform bill about five years previously, at the request of the Society. There was a discussion of the pros and cons of the design professionals approach for up to 25% firm ownership by non-licensees.

Mr. Grumet reported that the State Board for Public Accountancy (SBPA) would consider a proposal on April 26, 2007, to expand qualifying experience for CPA licensure. At present, 75% of a candidate’s service must be audit experience. The SBPA proposal would permit additional non-audit experience with a CPA firm to be counted. The proposal would be similar to language in the Uniform Accountancy Act (UAA) and include experience with a CPA firm in tax preparation, financial advisory services, and consulting. Some Board members advocated retaining the high requirement for audit experience for every candidate; some questioned the inclusion of consulting services; and some favored inclusion of tax preparation and tax advisory experience for licensure. Any proposal approved by the State Board to expand qualifying experience would subject to public comment and ultimately need to be approved by the State Board of Regents.

b. Member Benefits Update

Mr. Pape presented the membership benefits update and referred Board members to the materials included in the agenda.

Mr. Riley introduced Gail M. Kinsella, President of the Foundation for Accounting Education Inc. (FAE). Ms. Kinsella’s report included the following:

• The FAE Trustees were working to rally support for the COAP program. $98,000 of the $100,000 goal for the commemorative journal had been collected. FAE had been successful in attracting support from the Big Four firms. Firms that placed advertising would be provided with advertising feedback. Ms. Kinsella stated that about 30% of the Society’s Board had contributed to the journal. Ms. Kinsella had contributed personally as had her firm. She challenged Society Board members to do the same. The deadline to purchase an ad in the COAP Journal was April 18, 2007. Additional correspondence would be mailed to all members to raise additional funds for the COAP program.
• The budgeting process was completed at the February 7, 2007, Executive Committee meeting.
• FAE Trustees had authorized a marketing survey.
• FAE’s financial results relative to budget had improved substantially over the previous year. The FAE Trustees would continue to closely monitor this.
• FAE had made significant progress towards delivering CPE electronically and had rolled out the use of Microsoft’s LiveMeeting.
• Evaluation of registrant evaluations showed that FAE classes received a consistent score of 4.0 or better on a 5.0 scale. High quality service is being provided to all members and CPE courses. This was in part driven by membership participation at the chapter level. She emphasized that there was no indication FAE was losing market share.

Ms. Kinsella applauded FAE Trustees and staff for their efforts. She requested that any inquiries about FAE be directed to the FAE Trustees. Overall, the Board’s consensus was that FAE was headed in the right direction.

Mr. Lifson encouraged board members to attend FAE’s Business and Technology Show and Conference on May 16 and 17. The trade show was being held at the New York Hilton, the same location as the annual election dinner.

A discussion ensued regarding FAE’s objectives and whether FAE should be operated purely for profit or should function primarily to provide service to Society members. It was noted that if operated purely for profit, only profitable course titles would be offered and only at profitable locations. At the present time, the FAE mission is to offer a much larger catalogue of titles at many more locations throughout the state.

Mr. Falbo Chair of the Governance Subcommittee informed the Board that the Governance Subcommittee had suggested adding the following items to the orientation:

• The make-up of the Board of Directors
• An organization chart of the Society to the department level, which indicates responsibility for the various items described in the Society’s program budget
• The governance policy structure currently under development by the Governance Subcommittee

Mr. Falbo encouraged members to provide input for the content of the orientation. Mr. Lifson suggested that the governance area of the Society’s website be reviewed with the goal of making it more user friendly. Members discussed the content of the new board orientation. Mr. Lifson suggested that part of the board orientation be targeted at new board members and part be targeted to the board as a whole.

Mr. Ric Rosario, Executive Vice President, CAMICO Mutual Insurance Company, reported on the following items:

• The history of CAMICO
• Financial Facts
• Methods of Operation
• Primary Policy Features
• National Expansion Growth
• Progress of the Program in New York State
• Program Results.

Mr. Rosario informed board members that $1.4 million had recently been paid out to policyholders as a dividend. CAMICO focuses on educating its policyholders about risk management. Mr. Riley applauded CAMICO for providing excellent service to its policy holders. Mr. Rosario answered a number of questions posed by Board members He also welcomed their calls and invited them to visit CAMICO’s website, www.camico.com, if additional questions should arise following the meeting.

Mr. Grusd presented proposed 2007/2008 annual budget, which was included with the agenda materials. He noted that the major objectives of the proposed budget were to:

• Achieve the strategic goals of the Society while operating with a reasonable surplus.
• Generate sufficient cash flow to achieve the long-term objectives of building up a working capital reserve fund of $2 million by the end of fiscal 2013 and a moving reserve fund of $1 million by that date. The Society’s cash reserves were projected to be $600,000 as of the end of the current fiscal year, and accordingly additional reserves of $400,000 per annum would be required from 2008 through 2013 to achieve the targets.

Mr. Grusd drew the Board’s attention to the assumptions underlying the proposed budget, in particular the following:

• Salaries had been based on 84 full-time employees and a 3% average raise.
• Peer review administration fees had been increased by 30% to the participants which was necessary to cover the cost of this program.
• Member dues revenue was based on an increase of 2% in dues-paying members and a 2% increase in the amount of annual dues.

He also reviewed the proposed capital budget, which provided for $139,000 in expenditures. To achieve the cash reserve goals for the year, the capital budget reflected that two projects totaling $62,000 had been postponed into 2009.

The proposed budget reflected a net income for the Society of $175,000 and a breakeven for FAE, assuming a contribution from the Society of $719,000.

The cash flow reflected a cash surplus of $391,000 which would substantially achieve the long-term goals noted above.

Mr. Piluso moved to approve the 2007/2008 budget and Mr. Evangelista seconded the motion. Following discussion, the motion passed unanimously.

Mr. Grusd drew the Board’s attention to a structural fund deficit of approximately $500,000 in FAE. He suggested that an amount sufficient to cover the deficit be transferred from the Society to FAE and made a motion to that effect that was seconded by Mr. Evangelista. Mr. Woehlke suggested that, while this might be a good idea, it needed to be thoroughly analyzed to assure that there would be no adverse tax or accounting implications. Mr. Langowski concurred. Mr. Grusd offered to withdraw his motion and Mr. Riley asked if there were any objections to the withdrawal. There being no objections the motion was withdrawn.

President-elect Lifson, chair of the Board Selections Subcommittee, reminded the Board that each year they nominated individuals to serve as FAE Trustees. He noted that the Trustees themselves filled vacancies on the FAE board, but added that, pursuant to the FAE bylaws and the Affiliation Agreement between the two organizations, the Trustees were restricted to the Society’s list of nominees, provided there were at least twice as many nominees as there were vacancies. He mentioned that there would be three Trustee vacancies as of the end of the current fiscal year, so that the Board needed to nominate at least six individuals.

Mr. Lifson reported that an article was published in The Trusted Professional and an email was sent to all CPA members to solicit interest in serving on the FAE Board. Twelve individuals responded. The selections subcommittee met via teleconference to discuss the candidates and narrowed the list down to the following seven individual whom the subcommittee was entering into nomination:

• Lynn T. Chambers
• Eugene J. Farley
• Scott J. Jaffee
• Don A. Kiamie
• James F. Passikoff
• Warren Ruppel
• Denise M. Stefano

At that point, Mr. Kiamie recused himself from discussion and left the meeting. Mr. Lifson asked if there were any additional nominations. There being none, the nominations were closed without objection.

Mr. Falbo moved that the Board dispense with the process to limit the nominations to six and instead forward all seven candidates on to the FAE Board of Trustees. The motion was approved without objection.

Mr. Pape presented the membership report noting that as of February 7, 2007, there were 29,654 members compared to 29,204 at approximately the same time in the previous year. Of the 28,654 members included were the following: 232 new members, 65 reinstatements, 10 deaths, and 1 resignation and 3 terminations related to ethics. Mr. Falbo moved to approve the membership report and Mr. Mr. Stubbs seconded the motion. The motion passed unanimously.

Mr. Pape reported that the California CPA Society had surpassed the New York State Society in membership. He asked each Board member to contact him to ascertain whether there were any potential new members in their firms.

Mr. Falbo, chair of the Board Governance Subcommittee, presented a draft Audit Committee Charter which had been attached to the agenda. He highlighted the committee composition: two members from the Society Board, but not the Executive Committee; a FAE Trustee, but not an officer; and two Society members at large.

One issue about which the subcommittee wanted Mr. Falbo to raise before the full board was the authority of the Audit Committee to engage outside consultants. The current draft, per Executive Committee deliberation made the engagement of outside consultants subject to the contract approval policy of the Society. This meant that the officers and Executive Committee could override the Audit Committee’s decision to engage outside consultants. He pointed out that if this were to happen, the Audit Committee did have the authority to call a special Board meeting. Mr. Sohr moved to approve the Audit Committee Charter and Ms. Fischman seconded the motion.

During the discussion, Ms. Cutler was concerned that the description on page one of the charter did not parallel the committee responsibilities section that followed. Ms. Cutler moved to strike “for the accounting, financial, and internal control processes of the Organization and the audits of its financial statements” in section I of the charter. Mr. Stubbs seconded the motion. Following discussion the motion to amend was approved without objection.

Mr. Lifson then moved to replace “and the Board of Directors are” with “is” in the opening paragraph preceding section I. Mr. Langowski seconded the motion. Following discussion the motion to amend was approved. Messrs. Lesser and Ellis opposed.

There being no further discussion, Mr. Riley stated the question as approving the audit committee charter in the form attached to these minutes as Attachment A. The motion carried and the audit committee charter, as amended, was approved; Mr. Lesser opposed.

Mr. Woehlke noted that the 2006-2007 Nominating Committee had proposed three new nominating committee protocols. One of them in the Executive Committee’s view presented an issue for the Bylaws Revision Task Force and was referred to the task force for further consideration in February. The Executive Committee referred the remaining two proposed protocols to the Board for further consideration. Mr. Piluso moved to approve the Nominating Committee Protocols as referred to the Board by the Executive Committee and publish them in The Trusted Professional as required in the bylaws. Ms. Cutler seconded the motion. During the ensuing discussion a concern was raised with the direction to interview candidates in the second proposed protocol.

Mr. Lifson moved to replace “strongly encouraged to interview” with “encouraged to consider interviewing” in the second proposed protocol and Ms. Cutler seconded the motion. The motion to amend was approved without objection.

Mr. Riley put the question before the board as follows: To approve the following two nominating committee protocols and to direct that the protocols be published in The Trusted Professional as required by the bylaws:

NP-9. The Nominating Committee is encouraged to obtain written statements from each candidate for President-Elect in which the candidate outlines his or her views on issues and initiatives that are expected to arise during his or her term. For instance, the candidate should be asked the challenges they anticipate the Society will face and what actions they believe the Society should take to meet those challenges.

NP-10. The Nominating Committee is encouraged to consider interviewing candidates for President-Elect and may interview candidates for other positions as well; provided that all candidates for a given office, whether self-declared or recruited, are included in the interview process.

The motion passed unanimously.