BY MONROE M. AMPER CPA
FOUNDING PARTNER

Looking back at my experience in the accounting profession has been a reflective experience, particularly given the events over the past few years. The technology that we often take for granted today was just beginning to be born in 1949 when I started in accounting. Color TV, electronics and computers were in their infancy. Cellular phones, microwaves and laptops were strange words. Commercial jet airplanes were just beginning to fly.

Accounting was a pencil and paper profession aided by adding machines, calculators and sometimes by a strange combination of a typewriter/adding machine called an "accounting machine." The CPA was often the only professional that business owners dealt with on a regular basis. Besides accounting skills, the CPA had to possess some knowledge of banking, insurance, finance and psychology.

The relationship between the business owner and the CPA was often a very close one and it was not unusual to receive calls on weekends or nights to deal with a perceived or real emergency.

The CPA's primary function was to prepare a profit & loss statement reflecting the results of the business operations and to prepare the necessary state and federal tax returns. Needless to say, dealing with the Internal Revenue Service and other compliance issues were always "paramount" to our entrepreneurial clients.

Today, accounting services are often much more sophisticated and include areas that in the 1960s we never considered.

As a founding partner of Amper, I strongly believe Amper's philosophy can be summarized in a single word… "SERVICE." When the firm was established, the founding partners agreed that we must give our clients complete attention and be on the cutting edge of exceptional professional services. We made a personal and financial commitment to invest in good people, facilities, research, state of the art equipment and education so that we could deliver the best possible services to our clients. I am proud that the philosophy continues in the firm today.

We are very pleased that Thomas M. Mulhare CPA has joined our firm as Partner-in-Charge of Insurance Industry Services. Tom was a Senior Partner at Arthur Andersen where he directed both the Northeast Insurance and US Actuarial Practice. In his capacity, he managed 60 consulting actuaries and approximately 200 accountants and consultants nationwide. He also served as the Director of Insurance Training.

Tom has extensive experience in the property and casualty, life and healthcare insurance areas and has performed financial examinations, demutualizations and conversions as well as other regulatory services.

From 1997 to 2000, Tom was responsible for ensuring compliance with the alternative dispute resolution agreed to by Prudential Life Insurance of America. He worked with Prudential management, plaintiff's counsel and the NAIC Task Force. His healthcare and managed care experience include external work for Horizon Blue Cross Blue Shield of New Jersey and MasterCare.

He has directed audit engagements for several property and casualty companies including Robert Plan Corporation, New Jersey Citizens United Reciprocal Exchange (NJ CURE), First Indemnity of America Insurance Company and Massachusetts Employers Insurance Exchange. He has also served as Audit Partner overseeing the run-off and audit services for the Joint Underwriters Association as well as the insolvency aspect of Mutual Benefit Life Insurance in Rehabilitation. He also has significant other regulatory experience.

Tom is a member of the Board of Trustees of Rider University and is also an active member of various other professional and civic organizations. He has written articles for AM Best, The Global Exchange and other insurance publications. He is a Certified Public Accountant in New York and New Jersey and is a member of the American Institute of Certified Public Accountants.

SARBANES - OXLEY — Not For The Faint Of Heart

BY LARRY GRAY CPA
PARTNER

The recent parade of corporate failures and earnings restatements due to fraud accounting irregularities led legislators and the public alike to cry out for reform.

Enter Senator Paul Sarbanes and Representative Michael Oxley — politicians from opposite corners who put their differences aside long enough to craft the Sarbanes-Oxley Act of 2002 (the "Act"). This sweeping legislation imposes new requirements on public company CEOs, CFOs, Board Members and Audit Committee Members. The Act also imposes strict limitations on non-audit services that accountants may provide to their audit clients.

The Act is intended to increase corporate governance, auditor independence, and ultimately, investor confidence. To accomplish these goals, the following basic requirements have been enacted:

• Prohibition of certain non-attest services, such as internal auditing and financial information systems design and implementation;
• Rotation of audit partners: five years on, five years off;
• New role of audit committee require they give permission for external auditors to perform services not prohibited by the Act, such as tax research or preparation and due diligence;
• Creation of the Public Company Accounting Oversight Board, which will register and regulate CPA firms that audit publicly-traded companies;
• Retention of audit workpapers for a period of seven years;
• Certification by CEOs and CFOs of annual and quarterly filings;
• Internal control certification;
• Restrictions on hiring former auditors to financial positions;
• Minimum standards of professional conduct for attorneys.

"Corporate governance is one of the key components of investor protection," according to William Donaldson, SEC Chairman. "The audit committee is the bedrock upon which corporate governance has to be built." Unlike the audit committee of the past, the audit committee members of the Sarbanes-Oxley era are responsible for hiring the external auditors, deciding which other services the external auditors may provide and meeting with the external auditors several times throughout the year to discuss accounting issues, estimates and financial statements. In order to best accomplish these new duties, audit committee members should be financially literate and independent.

The accounting profession, which has taken an active role in the movement to rebuild investor confidence in our capital markets, has issued a new auditing standard on fraud. The provisions include sections on dealing with: brainstorming the risks of fraud while emphasizing increased professional skepticism; discussions with management and others as to whether they are aware of fraud; the use of unpredictable audit tests; and responding to management override of controls by requiring on every audit certain procedures responsive to detecting management override.

Although Sarbanes-Oxley is primarily focused on public companies, private and tax-exempt organizations should be aware of the areas at risk within their own entities. Corporate and fiduciary responsibility are critically important in all operations. Internal controls, financial transparency and auditor independence can provide early awareness of potential fraud and are an asset to any business.

The full impact of Sarbanes-Oxley on public and private companies and tax-exempt organizations is yet to be realized. As the timeline for implementation of Sarbanes-Oxley progresses, clearer interpretations of the requirements will emerge. It promises to be a challenging path for all who navigate it. If increased public trust in our capital markets and improved corporate governance are to be realized, it is most assuredly a road that must be traveled.

Our Public Companies Group understands that each organization has its own unique set of needs and risks. We assist the CEOs, CFOs, Boards of Directors and Members of Audit Committees with designing the plan that best meets your specific requirements, while ensuring compliance with Sarbanes-Oxley.

MANAGEMENT'S KEY ISSUES CONCERNING INTERNAL CONTROL

BY LEE SMITH CPA
DIRECTOR, INTERNAL AUDIT GROUP

By now, everyone in the business world has heard of the Sarbanes - Oxley Act of 2002, ("Sarbanes" or "the Act") but the real question is, how does it apply to me? Sarbanes contains many provisions affecting public companies. One of the basic premises is that companies should have internal controls in place to ensure that the correct financial information is being recorded and reported.

Section 302 of the Act makes the Chief Executive Officer and Chief Financial Officer personally responsible for the establishment, maintenance, monitoring and evaluation of internal controls. In fact, the CEO and CFO now have to certify that they are responsible for disclosure controls and procedures. Each quarterly Securities Act public filing must contain certifications that the CEO and CFO have performed an evaluation of the effectiveness of the internal controls. The concern with internal controls pertains not only to the financial area and financial statements but also to information technology, human resources and operational areas, as these areas may affect the financial statements as well.

Section 404 of the Act requires an annual assessment of internal controls by management and a statement by the external auditors attesting to the assessment made by management. The American Institute of Certified Public Accountants Auditing Standards Board has recently issued an exposure draft of a proposed statement on auditing standards for Auditing an Entity's Internal Control Over Financial Reporting in Conjunction With the Financial Statement Audit. Your external auditors will have to issue, as part of their audit opinion, a statement that the internal controls of the company have been tested, and in fact, are in place. Significant deficiencies will be reported and material weaknesses will preclude an unqualified opinion that internal controls are effective. Management should expect additional audit fees to cover this additional work.

The Auditing Standards Board states that management should document and assess the effectiveness of the internal controls. Now is the time to be internally reviewing and evaluating your internal controls. Each department within the company should define and document their significant controls. Most companies have policies and procedures in place. The problem is that many policies and most procedures are not fully documented. The Auditing Standards Board believes that failure to document or adequately test the system of internal controls should be considered a weakness in internal control and reportable in the financial opinion. The documentation process should begin immediately.

An independent verification of internal controls should be undertaken by the management team. Generally, this can be performed by the internal audit department or some other qualified independent third party. Ask each department head to list out significant processes, then list out the internal controls over those processes. Define what departments and what controls need to be certified to the CFO. Test these controls and document the tests performed.

The documentation and testing of internal controls is initially a time consuming process. Many companies do not have the resources to redirect to a project of this size. Additionally, most companies do not have staff with the expertise to document the controls. Prior to Sarbanes, companies would use their external audit firm for those resources. Sarbanes has restricted auditors from doing this type of work for an audit client.

Direct questions to Lee Smith, Director of Amper’s Internal Audit Group.

WHAT SHOULD INVESTORS DO NOW?

BY MARC SCUDILLO CPA, CFP, MBA, MS
MANAGING PARTNER, AMPER FINANCIAL SERVICES GROUP

Volatile markets have left many people wondering if we've hit bottom, and are on the way back up, or if it's finally time to sell their stocks and get out. This confusion is understandable. The stock market's performance over the past few years has shaken the faith of even the most committed investors. Corporate malfeasance and conflicts of interest at major brokerage firms add insult to injury and have investors wondering if anyone can be trusted. Lately, it seems as if the question of the day has changed from "How do I make more?" to "How do I keep from losing what I have?" Since no one expects the markets to return to their previous highs anytime soon, a stack of greenbacks under the mattress is starting to look more and more like a great investment idea to many investors.

Straight Talk About Diversification
When the markets are on the rise, equities are king. Everybody wants performance, and nobody wants to hear that some of their assets should be in bonds, REITS or other more conservative investments. Diversification goes out the door because, in the short-term, a diversified portfolio can't outperform a portfolio that consists only of the best-performing asset class.

When the S&P was up 20%, who would have thought that they were getting good advice from a financial advisor who recommended a portfolio that delivered 12%? Who would have been willing to leave that 8% on the table year after year as the markets soared? The story is the same on the way back down. When markets are getting crushed, and stocks are on sale, few investors buy. Instead, many look to low-yielding money markets and bonds as safe places to wait out the tough times. Think about this strategy for a minute. If many of the best professional investors in the country not only missed the onset of the bear market, but also got fooled by big companies cooking the books, what are the odds that an individual investor can accurately predict the market bottom just in time to jump back in and make a fortune as the markets bounce back? The reality is that nobody can pick the best-performing asset class year in and year out.

Investor Sentiment Meets Reality
That bull market in the rearview mirror looks better and better everyday. It was a great run, but nothing lasts forever. While the current situation is bleak, ignoring reality won't change it, so it's time to take a hard look at the road ahead. Uncertainty is a fact of life, and nowhere is this more apparent than in the financial markets. When you hear that soothing statistic about how stocks generally deliver returns of about 8% per year, it's easy to overlook that a year of -28% and a year of +44% produce an 8% average. When the markets deliver successive years of negative returns, that 8% can be hard to envision.

So what should you do? Do you get out of the markets for good?

Your course of action depends entirely on your personal financial situation. If you're wealthy enough that you don't need to worry about making more money, perhaps the difficult markets have helped you come to realize that you don't have the appetite for risk that you once thought you did. If that's the case, be thankful for your good fortune and, lesson learned, reallocate your assets to more conservative investments. On the other hand, if your personal financial situation will require substantial growth of your portfolio to meet your goals in the years ahead, abandoning the equity markets may not be an option.

What's Your Strategy?
To figure out which investments will serve you best tomorrow, start by taking a look at your investment strategy today. What investments do you have in your portfolio? Why are they there? What are you trying to achieve? If you invest without clear objectives, it is highly unlikely that you will achieve satisfactory results.

To address the situation properly, ignore what is happening in the stock market and focus instead on your personal financial situation. How much money are you looking to save? Why did you pick that number? How much risk do you need to take to achieve that goal? To answer these questions, many investors seek the assistance of a professional investment advisor.

Professional advisors often recommend that you put your goals and strategy in writing. In financial services terminology, this written statement is known as your investment policy statement. An investment policy statement serves many purposes. Initially, it helps you confirm that you have set realistic goals and reasonable timeframes for their achievement. Later, if the markets turn ugly and you're tempted to sell your investments, an investment policy statement helps you maintain your focus. Whether the market is up or down on any given day doesn't change the specific amount of money you will need to fund your retirement, pay for a child's education, or achieve other financial goals. So, before you make a change to your portfolio, go back and reread your investment policy statement. If your objectives haven't changed, neither should your strategy.

Long-term investing isn't about chasing hot investments to boost performance. Investing is all about strategy, and a good strategy isn't something that should change every time the Dow jumps or the S&P drops. If you've got concerns about the current market conditions, the question you really need to ask yourself is "What's my strategy?" Answer that question and you'll be better prepared the next time the market delivers a steep decline or a terrific advance.

Securities offered through Securities America, Inc. Member NASD/SIPC
Advisory services offered through Securities America Advisors, Inc.
2015 Lincoln Highway, Edison, NJ 08818; 732-287-1000 (ext. 312)

JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF 2003 — Highlights, Effective Dates and Omissions

Early in the morning of May 23, 2003, the House of Representatives, by a vote of 231-200, approved the conference report for H.R.2, the "Jobs and Growth Tax Relief Reconciliation Act of 2003," containing significant income tax relief for individuals, investors and businesses alike. Later that day, the Senate passed it by a vote of 51-50, with Vice President Dick Cheney casting the tie-breaking vote. The President signed the law on May 28, 2003, approving what may prove to be the most significant tax changes in decades. A summary and highlights of the law follow.

Tax Cuts for Individuals
Increased child credit, partially refundable for 2003

For 2003 and 2004, the child credit increases to $1,000 per qualifying child up from the previous law's $600 per qualifying child for 2003- 2004. After 2004, the child credit will drop back to $700 per qualifying child. For 2003, the increased amount of the child credit will be paid in advance beginning in July or August 2003 on the basis of information on each taxpayer's 2002 return filed in 2003. The payments will be made in a manner similar to the advance payment checks issued by Treasury in 2001 to reflect the creation of the 10% regular income tax rate bracket.

Marriage-penalty relief
The following marriage-penalty relief provisions apply for 2003 and 2004 only:

• The basic standard deduction amount for joint returns will be double the basic standard deduction amount for single returns. For tax years beginning after 2004, a joint return filer's basic standard deduction will revert to levels enacted by the 2001 EGTRRA (e.g., for 2005, to 174% of a single return filer's basic standard deduction).
• The end point of the 15% tax bracket for joint returns will be twice the end point of the 15% tax bracket for single returns. For tax years beginning after 2004, the end point will revert to the levels enacted by the 2001 EGTRRA (e.g., for 2005, 180% of end point of 15% tax bracket for single returns).

Accelerated increase in 10% rate bracket
For 2003 and 2004, the 10% tax bracket ends at $14,000 of taxable income for joint filers and $7,000 for single filers and married filing separately (up from $12,000 and $6,000 respectively). The increased figures will be indexed in 2004. The 10% bracket for a head-of-household is unchanged (it continues to end at $12,000 of taxable income). From 2005 through 2007, the end point of the 10% bracket will revert to the $12,000/$6,000 levels (and under the 2001 EGTRRA, will go up to $14,000/$7,000 for 2008 through 2010).

Accelerated reduction of tax brackets above 15%
For 2003 and thereafter, the tax rates above 15% are 25%, 28%, 33%, and 35% (previously, rates for 2003 above 15% were 27%, 30%, 35%, and 38.6%). After 2010, rates above 15% will revert to the pre-2001 EGTRRA levels.

Increased AMT exemption amount
For 2003 and 2004, the maximum AMT exemption amount is $58,000 for joint filers and surviving spouses, $40,250 for unmarried taxpayers, and $29,000 for married filing separately, reverting to $45,000, $33,750, and $22,500, respectively, after 2004.

Tax Changes for Businesses and Corporations

Expensing election
The following Section 179 expensing changes are effective for property placed in service in tax years beginning in 2003, 2004, and 2005:

• The maximum annual expensing amount is $100,000 (it was $25,000).
• The maximum annual expensing amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the tax year exceeds a specified dollar level. This dollar level is increased to $400,000 (it was $200,000).
• The above increased dollar amounts are inflation-indexed for tax years beginning after 2003.
• Off-the-shelf computer software will become eligible for expensing (it was ineligible).
• Taxpayers may revoke expensing elections on amended returns without IRS consent. Under previous law, expensing was revocable only with IRS consent.

Increased bonus first-year depreciation
In general, 30% additional first-year depreciation allowance applies to the non-expensed portion (under Section 179) of qualified property (which includes most new MACRS property) if: (1) its original use commences with the taxpayer after Sept. 10, 2001; (2) the asset is acquired by the taxpayer after Sept. 10, 2001 and before Sept. 11, 2004, and (3) it is placed in service by the taxpayer before 2005 (before 2006 for certain property with longer production periods).

Under the new law:

• For 30% bonus first-year depreciation purposes, qualifying property may be acquired before 2005.
• 50% bonus first-year depreciation applies to qualified property if (1) its original use commences with the taxpayer after May 5, 2003; (2) the asset is acquired by the taxpayer after May 5, 2003 and before 2005 (there can't be a written binding contract for acquisition in effect before May 6, 2003); and (3) it is placed in service by the taxpayer before 2005 (before 2006 for certain property with longer production periods).

Note:

• There is no AMT depreciation adjustment for the entire recovery period of qualified property recovered under the bonus first-year depreciation rules (50% or 30%). Taxpayers may elect on a class-by-class basis to claim 30% instead of 50% bonus first-year depreciation for qualifying property, or elect not to claim bonus first-year depreciation at all. Two situations in which a taxpayer will likely consider making an election to claim smaller bonus first-year depreciation, or to elect out of it entirely, are where the taxpayer (1) has about-to-expire net operating losses, or (2) anticipates being in a higher tax bracket in future years.
• Taxpayers are first allowed the expensing deduction, then the bonus depreciation on the remaining cost, and then "regular" depreciation on any cost still remaining.

Corporate estimated tax payment
In general, corporations must make quarterly estimated tax payments of their income tax liability. For a corporation whose tax year is a calendar year, estimated tax payments must be made by Apr. 15, June 15, Sept. 15, and Dec. 15. Under the new law, any corporate estimated tax, which is otherwise due on September 15, 2003, won't be due until October 1, 2003.

Reduced Rates for Capital Gains & Dividends
Under previous rules, an individual's adjusted net capital gain generally is taxed at a maximum rate of 20% (10% if it would otherwise be taxed at 10% or 15%) for regular tax and AMT purposes. Adjusted net capital gain is net capital gain (net long-term capital gains exceeding net short-term capital losses) less 28% rate gain (affecting collectibles and certain small business stock) and less 25% rate gain (generally, gain representing depreciation claimed on MACRS realty). Gain from property held more than five years that would otherwise be taxed at 10% is taxed at 8%, and gain from property held more than five years and the holding period for which begins after 2000, which would otherwise be taxed at 20%, is taxed at 18%.

Dividends received by an individual currently are taxed as ordinary income at rates up to 38.6% (for 2003).

Under the new law:

• Effective for sales and exchanges (and payments received) after May 5, 2003, and before Jan. 1, 2009, the 10% and 20% rates on adjusted net capital gain are reduced to 5% (zero, in 2008) and 15% respectively, for both regular tax and the AMT. The lower rates apply to assets held more than one year.
• Effective for dividends received in tax years beginning after 2002 and before 2009, dividends received by an individual shareholder from domestic corporations are treated as net capital gains for purposes of applying the capital gain tax rates. In other words, the dividends are taxed at rates of 5% (zero, in 2008) and 15% for both regular tax and AMT purposes. Special rules and exclusions apply. For example, if a shareholder doesn't hold a share of stock for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date, dividends received on the stock won't be eligible for capital gain rates. Not all corporate distributions are entitled to tax-reduced dividend treatment, creating a new web of complex rules for both shareholders and corporations alike. Stay tuned.

Provisions Omitted from the 2003 Tax Act
There were some provisions that were discussed in the formulation of the Act, but were omitted from the final bill. These provisions are as follows:

1. No permanent repeal of the estate tax
   Under the 2001 Act, estate, gift and generation-skipping transfer taxes are being reduced for years 2002 to 2009. The estate and generation-skipping transfer tax (not the gift tax) is to be repealed in 2010. The top gift tax rate in 2010 will equal the top individual income tax rate. The scheduled repeal of the estate tax in 2010 is still scheduled to sunset in 2011.
   The annual gift tax exclusion of $11,000 and the current unified credit of $1million remain in place.
2. No acceleration of the repeal of phase-out of personal exemptions
   Under the 2001 Act, the phase-out of personal exemptions begins at $209,250 of adjusted gross income for joint filers in 2003. This phase-out will gradually be reduced during the upcoming years and repealed in total after 2009.
3. No acceleration of the repeal of limitations on itemized deductions
   Under the 2001 Act, there is a limitation on itemized deductions by 3 percent of adjusted gross income in excess of $139,500 for joint filers in 2003. The phase-out for this provision will begin in 2006 and will be fully repealed for years after 2009.
4. No extension of the five-year net operating loss carryback period
   Under the 2002 Act, the two-year carryback was extended to five years. This provision is only effective for net operating losses arising in tax years ending in 2001 and 2002.
5. No extension of the research and experimentation tax credit
   This provision generally applies to amounts paid or incurred prior to July 1, 2004.

This summary is meant to be a brief description of the tax cuts affecting both individuals and businesses in the new law. It does not cover all the tax benefits and planning opportunities that apply to any specific business or personal situation. Careful planning will have to be exercised to make the most of the tax relief in JGTRRA'03. This is especially true because of the retroactive effective dates and the temporary duration of many of the provisions.

Any transactions that are already in the works, and those you may have previously planned, may need to be reviewed to see how the new law affects them - revisions may be necessary. The good news is, many tax savings opportunities may now exist that did not previous to this laws enactment. There may be new personal and/or business projects or investments that the new law will enable you to undertake which were not possible before its passage. Please feel free to call us today so we can discuss a tax strategy to best take advantage of the new provisions.

For the entire text of the Jobs and Growth Tax Relief Reconciliation Act of 2003 go to http://www.unclefed.com/TaxHelp/legislation/hr2_final.html

FRAUD AND THE FINANCIAL STATEMENT AUDIT

BY PETER FREITAG CPA
PARTNER

The Accounting Standards Board has issued a new standard effective for the calendar year 2003 regarding auditor responsibilities to detect fraud. The new standard, SAS 99, does not change the responsibility of the auditor to detect material fraud in the financial statements or management's responsibility to prevent fraud, but adds new procedures to be performed by the auditor. These procedures include discussions by the audit team to consider susceptibility of the financial statements to fraud and to continually maintain professional skepticism. The auditor then must obtain other information to identify fraud risks. Examples include inquiries of management and staff in fraud risk areas. Once the risk is identified, the auditor must complete the evaluation of the company's programs and internal controls so that he/she may assess that risk. The auditor must then respond to the results of the risk assessment.

The new standard is designed to improve audit quality by better detection of material misstatements caused by fraud and also help detect misstatements that are not caused by fraud.