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ENJOY SSF SPOTLIGHTLetter from the Managing Partner

John SensibaManaging PartnerSensiba San Filippo LLP

Dear Friends,

I am delighted to once again have the opportunity to share updates on our company and our employees. Most importantly, I am humbled and grateful to have the opportunity to thank you for your continued support of our business.

In addition to our annual update, this year we have included an inspiring interview with Amr Salahieh, CEO of Shifamed. We have had the pleasure of working with Amr for close to 20 years. This interview shares his valuable insights on venture capital and medical device industries and best practices on growing a successful business. Amr shares some tremendous personal insights and I hope you will be as inspired as we are with the work he is doing to help change patients’ lives.

At Sensiba San Filippo (SSF), we know that we are not changing lives in the same way, but we are helping to shape our client’s financial success and future. We take great pride in the fact that every day we are in some way helping our clients to be successful, whether in business or with their family’s financial future. In support of that, we continue building for the future—developing our team, our resources and our relationships.

With the U.S. economy and Bay Area markets continuing to undergo a transformational shift we have continued to focus on improvement, investing in specific areas of our firm that position us to better serve our clients as their business grows, their challenges change and their priorities shift.

In the past year, we have invested heavily in developing our industry leading Business Process Assurance (BPA) group. As information becomes currency, we are determined to help our clients protect the data that drives their success. While our BPA group continues to provide Sarbanes-Oxley (SOX) services and Service Organization Controls (SOC) services, they have also added HIPAA compliance, ISO 27001 compliance, and Webtrust for California. They have also brought on several new, experienced staff members who specialize in these fields, helping our clients create internal controls to protect their data, systems, customers and organization.

Our Small Business Services group led by Scott Anderson, has expanded to support our growing list of small business clients. With our focus on helping clients meet the challenges that lie ahead, we acquired a boutique business consulting and family office services firm, Paraclae. With this addition, we now offer family office services to support busy professionals and high net worth families.

While we remain focused on serving businesses and families in the Bay Area, our clients are increasingly finding opportunities beyond state and national borders. We are members of KS International, an international association of professional services accounting firms with locations in over 60 countries around the world. As a part of our association, we are able to help

our clients make local connections, receive services from trusted affiliates in overseas markets, and to have the confidence that comes from being surrounded by a team of trusted advisors as they are expanding into new markets. This past year, we have helped several U.S. based companies set up operations overseas and have helped foreign companies bring their products and services to the Bay Area market. Recently our tax partner-in-charge, Bill Norwalk, attended the annual KS International meeting in India, where he met with the affiliate firms and discussed new ideas for further collaboration across international borders. We are pleased to share that during the meeting in India, Bill was officially appointed as a director for KS International.

Another great accomplishment for us this past year was the launching of our new website. This new resource allows us to share timely and relevant market information and thought leadership. It also allows visitors to further engage with our team members and to have access to their wealth of knowledge on both technical and industry related issues. You can keep up with our firm, and our team’s latest ideas and experiences by visiting our website at www.ssfllp.com or following us on social media (we are on Facebook, LinkedIn and Twitter).

I have been delighted to see our firm grow in numbers and in our depth of expertise this past year. We welcomed Frank Balestreri as a new SSF audit partner; he had previously been a partner with Deloitte. We have also promoted Scott Anderson to audit partner. We are truly blessed with a team of amazingly talented professionals. The market has also taken notice, recognizing our talent and the superior service we deliver. We are now proudly ranked among the top 10 regional accounting firms serving clients in the Bay Area. We are always on the lookout for new talent, and welcome you sharing recommendations of any passionate and driven professionals who are looking for new opportunities. We have a list of our current career opportunities on our website, at ssfllp.com/careers.

Thank you again for providing us with the privilege of serving you. We welcome and value feedback, please pick up the phone and call me, or send me an email directly. I look forward to hearing from you and hearing how we are doing in serving your needs.

Warmest Regards,

“Our workplace culture is guided by a single, fundamental belief based on the “Golden Rule” of business.We treat people the way we would want to be treated.”

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TABLE OF CONTENTS

SSF SPOTLIGHTThought Leadership & Industry Insights Magazine

8 Crowdfunding What is crowdfunding and what does it mean for the future of financing?

10 Tax Time How planning now will lead to big savings next spring

12 Doing Business Overseas A look at doing business in the United Kingdom and beyond

15 Leaders of Tomorrow Why it’s important to start investing in your future leaders today

16 Do You Really Need an Audit? How to know if your business needs audited financial statements

18 Disaster Recovery Preparing your data, and your organization, for the unexpected

20 Shortening Month-End Tips for an efficient, successful month-end close

21 COVER FEATURE Amr Salahieh + Shifamed: A Story of Medical Device Innovation Reinvented SSF Blue

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Sensiba San Filippo LLP4900 Hopyard Road, Suite 200Pleasanton, CA 94588

(925) 271-8700www.ssfllp.com

FOLLOW US

2015 ISSUE

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26 Competitive California? How new tax credits are making California a bit more business friendly

27 New Tax Incentives New California manufacturing and R&D sales tax exemption

28 Is it Time for Outsourced Accounting? Transform your financial accounting in 6 steps

30 Audit Time Understanding your first financial statement audit

33 Surviving a Recall How to navigate the financial risks and exposures of a product recall

34 Food & Beverage Innovators Their secrets to manufacturing success

36 A Leaner SOC 2 What the AICPAs new SOC 2 guidelines mean to your organization

38 Rockstars Wanted We are looking for a few good rockstars to join our band of accountants

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We understand what keeps you up at night.

With over 35 years of accounting knowledge and expertise, we understand what keeps you up at night. We strive to give our clients the relief and peace of mind they need to get a good night’s sleep.

925.271.8700 | ssfllp.com

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WHO IS SSF?Sensiba San Filippo (SSF) is one of the largest Northern California based CPA and business consulting firms focused on providing superior client service, deep technical expertise, and a passion for the industries we serve, to clients throughout the San Francisco Bay Area. We are a boutique-sized firm by choice, allowing us to deliver proactive and personalized service while delivering more than 35 years of knowledge and technical expertise that is comparable to that of a national firm.

What differentiates SSF is simple – it is our focus on client service and our deep technical and industry expertise.Our firm includes 16 partners and approximately 110 additional professionals. We have four offices across the Bay Area to serve our clients including: San Jose, San Mateo, Pleasanton and Morgan Hill. Our size gives us the nimbleness to deliver the highest quality of work, while giving our partners the time to cultivate and maintain personal relationships with our clients.

Proactive CommunicationWe are committed to having timely discussions and planning strategy meetings on both tax and accounting issues to ensure that our clients are well-prepared for future growth. This includes collaborating to find timely answers to tax and accounting questions. Our proactive approach means we do more than wait to solve problems; we work to prevent them. We actively seek ways to help our clients realize their full operating potential.

Commitment to a Long Term RelationshipAs a matter of record, Sensiba San Filippo has one of the highest client retention rates with many of our clients remaining with our firm year after year. We value a long-term relationship with our clients. Our priority is to build a relationship based on a year-round process where conversations and analysis occur contemporaneously with your planning process, not after transactions have occurred. We work to earn our clients trust. Our client service team will work tirelessly to ensure satisfaction with our service, our timing, and our partnership.

An International ReachSensiba San Filippo is a member of KS International (www.ksi.org), a global network of professional service firms, with a presence in over 60 countries. KSI was formed to help its members better serve the global needs of their clients engaging in international business transactions by providing an international resource for accounting, consulting, legal, and taxation services as well as referrals to local service providers.

SSF has strong, long term relationships with member firms around the world and we frequently share communications and timely updates with one another. In addition, we maintain an active role in the organization by attending annual conferences held in major metropolitan cities around the world, and partnering in the development of thought leadership. SSF tax partner-in-charge, Bill Norwalk, serves as our dedicated global liaison within the KSI network and was recently named a director of KSI. This relationship ensures we can support our client’s global needs on an immediate basis.

So you’re an accounting firm...what makes you different? Assurance, Advisory & ReviewSSF’s assurance team provides financial statement compilations, audits and reviews for the benefit of company management as well as to provide the reliable, standardized, accurate reports to interested stakeholders — its creditors, investors, vendors, or even potential acquirers. Our professional’s will help you to prepare and proactively anticipate what vendors will need as they assess your company, and to best prepare in response to any questions or feedback.

Tax Planning & Compliance SSF’s tax team works with clients to find appropriate solutions to maximize their tax benefits and savings. When it comes to tax planning, clients need more than technical guidance from their service advisors. Our firm takes a combined approach of delivering specialized technical expertise on our client’s industry as well as a deep understanding of our client’s specific circumstances.

Small Business Services SSF’s Small Business Services team helps businesses of all sizes produce timely, meaningful financial statements providing substantive and accurate information for decision making. The improved process and timeliness achieved through working with our team may also help reduce the costs of an annual financial statement review or audit. Services include: • Periodic financial statement compilation / preparation • Fixed asset / depreciation projects• In-house close assistance, process development and • Accounting training standardization • Account reconciliations• QuickBooks training / bookkeeping services • Chart of accounts setup and / or review

Family Office ServicesSSF’s family office services include everything from planning and administration, to monitoring and compliance. For many clients, we function as a personal Chief Financial Officer, overseeing the many aspects of their personal financial world. For others, we assist with more targeted goals such as succession planning and philanthropic strategies. Services include: • Tax planning, advisory and compliance coordination • Family governance and coaching• Cash flow planning, management and opportunity • Financial analysis monitoring (including bill pay) • Consolidated online investment performance reporting• Implementation of trust, estate and gift strategies • Organizing estate planning• Managing multiple advisors • Philanthropic planning and organization• Evaluating business opportunities

Business Process AssuranceOur Business Process Assurance group assists clients in increasing the reliability and consistency of information produced by their business processes and IT systems. Our practice assists companies in establishing processes and controls necessary for assurance of information reported to both internal and external stakeholders. • SSAE 16 (SOC 1) • HIPAA Compliance• SOC 2 & 3 • ISO 27001 Compliance• WebTrust • Sarbanes-Oxley (SOX) Compliance

Mergers & AcquisitionsAs a leading accounting firm, SSF is well-versed in the intricacies of M&A transactions - whether clients are looking for a successful buyout or to prepare for an acquisition. SSF can advise you through the process ensuring that decisions are made with your best interests in mind. Services include: • Business plan preparation • Due diligence / Target assessment• Tax planning • ESOP consultation and planning• NOL leverage / planning • Exit strategy development and implementation• Recasting historical financial statements • Offer evaluation• Transaction negotiation • Team selection

SERVICES WE OFFER

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Have you heard that the world is getting smaller? That cliché is commonly used to describe the

effects of technology, social media, and mobile connectivity. The same technology that is making the world smaller is actually expanding funding options. It is having a profound effect on the way organizations, from nonprofits to technology startups, are connecting with potential donors and investors. And now there’s even a word to describe these rapidly evolving funding options – crowdfunding.

Here is an inside look at crowdfunding and how it could change the landscape of funding.

What is crowdfunding?Crowdfunding is a funding phenomena

made possible by social connectivity. It relies on the Internet and social media to facilitate the financing of initiatives from a large pool of disparate backers. These initiatives could be anything from political campaigns to seed money for startup companies. Where traditional funding avenues are often limited by geography and familiarity, crowdfunding harnesses digital and social media networks to connect initiatives with an enormous number of potential contributors anywhere in the world.

In what ways is crowdfunding being utilized to raise capital?

Crowdfunding is really nothing more than a method of connecting people and money with initiatives. So it follows that wherever initiatives exist that need funding, crowdfunding is being utilized. Major types of crowdfunding include donation-based crowdfunding, where supporters give money to support a cause; reward-based crowdfunding, where sites like Kickstarter allow backers to receive rewards in exchange for monetary pledges; credit-based crowdfunding which is commonly

known as peer-to-peer lending, and finally equity-based crowdfunding, where backers can actually receive ownership shares in a company based on their investment. For the business community, equity crowdfunding is by far the most intriguing development.

What is the potential for equity crowdfunding?

At the moment, equity crowdfunding is both the least developed and potentially the most exciting form of crowdfunding. Raising equity capital from the public has been strictly regulated to protect investors since the passing of the Securities Act of 1933. But as crowdfunding evolved and grew in popularity, Congress reacted by passing the 2012 JOBS Act to crack open the door for equity crowdfunding.

How did the JOBS Act open the door for equity crowdfunding?

Full implementation of the JOBS Act is still contingent upon the release of final regulations by the U.S. Securities and Exchange Commission. Nevertheless, speculation on its potential effect is already rampant. Two major sections of the JOBS Act address crowdfunding. Title II of the JOBS Act went into effect Sept. 23, 2013 and allows for “general solicitation” by private companies to raise money publicly via “accredited investors.” For savvy business investors, Title II is probably more important, because it deals with larger investments, more developed opportunities, and more substantial equity issuances.

Equity crowdfunding for non-accredited investors was addressed in Title III of the JOBS Act and could potentially connect countless businesses with an enormous pool of potential investors that were previously off-limits. While the impact of Title III could be tremendous, actual implementation is still on hold as the SEC works to put together final regulations.

Could equity crowdfunding fundamentally change the way ventures are financed?

The potential impact of equity crowdfunding is still up for debate. Limitations placed on the total value of crowdfunding equity issuances as well as limits placed on investments by individual investors will likely minimize the incursion of crowdfunding into larger traditional equity backed initiatives. Equity crowdfunding has greater potential to benefit startups with the seed capital needed to turn an idea into a business. If equity crowdfunding means getting more good ideas off the ground, the effects will eventually be felt throughout the venture capital and entire business community. •

Crowdfunding What is crowdfunding and what does it mean for the future of financing?

by Bob Belshe

ABOUT THE AUTHORBob Belshe is an audit partner at Sensiba San Filippo with over 10 years experience. He specializes in risk management, business combinations, fair value measurement, valuations, equity-based transactions and stock-based compensation. Bob can be reached at (408) 286-7780 or bbelshe@ssfllp.com.

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Many Americans don’t choose to spend much of their free time thinking about taxes. In fact, many seem to view taxes as a seasonal obligation that requires attention just once

each year.

However, unless paying more tax than is required is desirable, proactive tax planning is a very good idea as many opportunities for tax reduction require action in the year preceding the filing of tax returns.

Why are fall and winter critical times for tax planning?A person’s tax returns are simply reporting requirements for taxes

due from income earned in the prior year. By the time the taxes are owed and filing is required, many opportunities for savings have passed. Now is the right time to plan for next spring’s tax bill.

For individuals, many tax saving opportunities are accessed through employer-provided benefit plans. Most employers provide just one opportunity each year for employees to make changes to

their benefit elections and various contributions. Each employer determines its own open enrollment period, but a large number of employers tend to offer an open enrollment at the end of the year, in November or December.

What are some significant opportunities to consider?Retirement accounts provide one of the most significant saving

opportunities available to employees. That’s why it is so important that employees take full advantage of any matching contributions an employer is willing to make to a 401(k) account. Contributing less than the employer match cap is essentially turning down free money.

In addition to traditional 401(k) plans, Roth 401(k) plans are an increasingly popular investment vehicle that is more often being offered to employees by many employers. A Roth 401(k) is very similar to a 401(k), but contributions to the former are made with after tax dollars.

Tax Time How planning now will lead to big tax savings next spring

by Megan McManus

A Roth 401(k) has the same annual contribution limits as a traditional 401(k) — $17,500 this year — but does not have the income limitations imposed on Roth IRAs, meaning higher-income taxpayers can also take advantage of the investment vehicle. Employees are advised to find out before the next open enrollment if their employer is currently offering a Roth 401(k).

What other employer-offered savings vehicles are available to employees?

Savings can also be created by contributing to a health savings account (HSA). These tax-free contributions must be used for medical expenses and any unused balance can roll forward every year. While HSAs are only available to those on high-deductible health plans, a flexible spending account (FSA) is not restricted to just high-deductible health plans.

An FSA does come with one significant catch — it’s a use it or lose it account. Only $500 can be rolled over from year to year, so it’s very important to carefully consider annual contributions.

What are some actions that should be taken now that will likely ensure savings later?

Remember that tax planning is an individual process. What is right for one individual or family may not be right for another. Understanding the opportunities, the current situation and future plans will allow a person to minimize his or her tax liability and maximize wealth.

Before the end of the year, or before open enrollment period, it’s a good idea to sit down with a tax adviser. With his or her help, a plan can be developed based on individual needs and available opportunities. Failing to plan now could lead to paying more than is necessary next spring. •

1 Go for a health tax break. Be aggressive if your employer offers a medical

reimbursement account — sometimes called a flex plan. These plans let you divert part of your salary to an account which you can then tap to pay medical bills. The advantage? You avoid both income and Social Security tax on the money, and that can save you 20% to 35% or more compared with spending after-tax money.

2 Take full advantage of any company match. If you have a 401(k), 403(b), or

governmental 457(b) plan and your employer offers a matching retirement contribution, take full advantage of it. In addition to receiving the company match, you get the added potential benefits of any tax-deferred growth and compounding returns.

3Think green. A tax credit is available for homeowners who install alternative energy

equipment. It equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, and wind turbines, including labor costs. There is no cap on this tax credit, which is available through 2016.

3Tipsfor bigger savings

ABOUT THE AUTHORMegan McManus is a tax manager at Sensiba San Filippo with over 6 years experience. She specializes in tax compliance and wealth preservation for high-net worth individuals, family offices, and executive groups. Megan can be reached at (925) 271-8700 or mmcmanus@ssfllp.com.

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Doing Business Overseas Greg Brown of Silicon Valley-based Sensiba San Filippo and Richard Heap of London-based Chartered Accountants Kingston Smith discuss doing business in the United Kingdom and beyond.

DID YOU KNOW...Sensiba San Filippo is a member of KS International, a global network of regional accounting firms, with a presence in over 60 countries. Learn more on page 6.

As technology continues to make the world seem smaller, more US-based companies are looking overseas

for untapped opportunities. International expansion has traditionally been undertaken primarily by large, multi-national companies. Today many small, private companies are joining this trend and increasingly venturing outside the US. For these companies, however, seeking overseas opportunities does come with a different rule book, including many hazards and pitfalls that business owners must be prepared to encounter and address as they are expanding internationally.

Greg Brown, tax partner at Sensiba San Filippo LLP (SSF) and Richard Heap, technology, media and telecom partner with UK-based chartered accountants Kingston Smith, sat down to discuss why more businesses are considering overseas expansion and what they need to know before investing in the UK and beyond. Brown has helped many leading Bay Area companies make strategic decisions about overseas expansion, from Europe to Asia and beyond, while Heap has helped numerous US-based companies set up European operations in the UK.

Why are more and more companies looking overseas for opportunity?GREG BROWN: In recent years, we’ve seen locally-based companies looking into international expansion for two primary reasons: increased sales opportunities and access to new talent pools. Consumer markets are expanding across the globe, while Bay Area technology companies are increasingly looking to India, the UK and Asia for specialized talent. In both cases, in order to increase their probability of success, company decision makers need to educate themselves or partner with those that know about the geographies they are entering.

RICHARD HEAP: US-based companies commonly see the United Kingdom as an entry point to Europe and providing a relatively “easy” point of entry for serving their international clients. Our geographic and historical proximity to Europe and our shared language and history with the US makes the UK a natural bridge between the US and Europe. For businesses expanding overseas, having connections in the UK can help open doors throughout mainland Europe.

As for why we see companies coming to Europe, in general, the primary reason is to be closer to their customers. It can be quite difficult to connect with customers across language, cultural and even time zone differences. Establishing operations in the UK, allows businesses to more efficiently and effectively serve their international clients and to access the European mainland.

What’s the first thing a company should do prior to opening a foreign operation?GREG BROWN: Most businesses considering foreign expansion already have a good idea where they want to go and why they are going there, but their certainty isn’t always the result of thorough planning. It is not unusual for a business to make a snap decision about entering into a contract with a foreign customer or to hire a talented foreign employee without doing their homework. While the business decision may make sense, they may not know the operational or cultural challenges and the tax implications of their decision.

Companies venturing out should use qualified advisors that have local connections and experience in the country where they are considering doing business. These advisors can navigate through the applicable laws and provide valuable advisory services to the state-side leaders. Many law and accounting firms have international resources and can often connect their clients with these advisors through global professional affiliations.

RICHARD HEAP: This is an area where many US companies commonly have a misstep. When a foreign company enters the US, often the first point of contact is an attorney. The attorney can help them select and setup optimal legal entities and navigate the maze of local and regional rules and regulations. In comparison, in the UK, businesses are best advised to start with securing a relationship with a chartered accountant. Accountants in the UK are the gatekeeper advisors that can help coordinate all required activities. Additionally, unlike in the US, chartered accountants in the UK can actually setup companies and legal entities. When lawyers, bankers or other advisors are needed, experienced accountants with local connections can point you in the right direction.

How can culture affect the outcome of an overseas venture?GREG BROWN: Cultural differences are often overlooked during international expansion. Without prior experience in a specific location or the luxury of a local partner, it’s easy to miss cultural differences that could significantly impact the success of the venture. An understanding of proper manners and etiquette are important and should be valued. A local advisor or business partner can help you understand cultural differences ahead of time and potentially avoid the embarrassing faux pas.

Travel and local time differences are also important considerations. Using sales or development teams overseas will require interaction with your US-based personnel. This means calls at odd hours and potential travel to these areas.

1. Getting the wrong corporate structure for your needs

2. Missing critical tax requirements and getting setup correctly

3. Waiting too long to establish a UK banking relationship

4. Missing key cultural differences

5. Failing to account for immigration requirements and clearance when sending employees overseas

5MAJOR LANDMINES TO AVOID WHEN OPENING UK OPERATIONS

RICHARD HEAP: Culture differences in the UK may seem minor, but they can still pose challenges even for savvy businesses. For instance, in the US no one would think twice about sending a business email at 11:00 p.m. and expecting a response the next morning. If I sent an email at 11:00 p.m., my client might think I was overly keen with no personal life. Business is done at all hours in the US. British customs dictate more of a separation between working and personal hours. Networking is also a different experience and is less “in your face.”

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which helps mitigate double taxation. Companies should be sure that their professionals are taken care of and that their taxes are sorted out before sending them overseas.

The UK also has what is called Value Added Tax (VAT). Companies doing business in the UK will need to first register to collect and charge VAT and to do that, they’ll need to have established a UK banking relationship. Whether you are expanding to the UK, mainland Europe or elsewhere, working with a local accountant early on will ensure that you are compliant with local tax laws and regulations. Coordination between your US accountant and your UK accountant will help you avoid potential problems while planning for overall tax minimization.

Any other advice you want to share?GREG BROWN: Have a clear vision of what you want to do, educate yourself and your team and use competent legal, tax and business advisors. Start by talking with your lawyer and accountant. Many professional advisory firms have experience in foreign operations and very useful contacts in other countries that can help ensure that your venture has the greatest possibility for success.

RICHARD HEAP: It’s essential that you setup your UK entities correctly from the beginning. Your level of activity, relationship with parent company, tax ramifications and more can help to determine your optimal corporate structure. You should be strategic about your corporate structure. Consult with experts both the US and in the UK.

Establish an accounting relationship first in the UK. The right chartered accountant will provide tremendous value and help ensure a seamless transition.

It is also important to note that the UK is more than just London. Many American businesses look at London only, when other parts of the UK may be a better fit. London is a very expensive place to do business and specific industries have concentrations outside of London. For example, the east coast of England has a large bio-tech community. A US-based bio-tech company looking to tap local talent may be better served looking that way.

How important are the tax ramifications of international business?GREG BROWN: The tax ramifications of operating in a foreign country are an important aspect of the overall business decision. Businesses should consider what level of activity would cause them to come under the laws of another country, and what they’ll need to do to ensure compliance. Even having a few employees in a foreign country may require the company to file tax returns and possibly pay tax. If a company establishes a related foreign company (subsidiary), this comes with additional requirements such as transfer pricing agreements.

Moving existing employees to another country or having them work overseas will more than likely require them to pay foreign tax in addition to their U.S. tax obligations. You should consider their personal tax ramifications as well. It is normal for companies to enter into agreements with these employees in order to equalize the financial tax burden and benefits that result from overseas employment.

RICHARD HEAP: The tax ramifications of sending your professionals to the UK should not be overlooked. Working in the UK will complicate their tax situation and may create tax liability in both countries. However, there is a double tax treaty between the UK and the US

How do Sensiba San Filippo and Kingston Smith work together to help their clients?GREG BROWN: Doing business globally is becoming more and more common for closely held businesses and middle market corporations. What was once a challenge tackled only by Fortune 500 corporations is now an opportunity that entices businesses of all sizes. Here in Silicon Valley, our technology sector is actively looking for more talent and expanded markets. In many cases, that means expanding internationally. At SSF, we have the ability to help our clients face challenges and capitalize on opportunities. When our clients look overseas, we need to have trusted, reliable partners in other countries that we can work with to bring the greatest value to our clients. To accomplish this, we actively participate in KS International (KSI), an international association of independent accounting firms. When our clients need help doing business overseas, we can pick up the phone and talk to a local advisor that we trust to help take care of our client’s needs. KSI is an invaluable resource to SSF and our clients. And when a KSI firm from outside the US has clients with needs in the US, we are here to help them as well.

RICHARD HEAP: Our clients do business globally, so they require a global network of advisors. Kingston Smith is the original member of KSI, an organization that now includes member firms in over 70 countries. Whether you are a client of Kingston Smith, Sensiba San Filippo or any other member firm, you have access to local experts all across the world. There really aren’t any major markets you would want to go where your local accountant couldn’t help you connect with a local advisor and local resources on demand. •

Greg Brown, CPA, MST Tax Partner Sensiba San Filippo LLP (408) 286.7780 gbrown@ssfllp.com

Richard Heap, FCATechnology, Media & Telecom PartnerKingston Smith LLP+44 (0)20 7306 5653rheap@ks.co.uk

Regardless whether you are a manufacturer, distributor, consultancy or technology firm,

your staying power and ongoing success will ultimately be determined by one single factor: your future leaders. Most business owners recognize the critical importance of leadership, yet many organizations still fail to develop the leaders they will need to face tomorrow’s challenges. What should businesses be doing now to groom tomorrow’s leaders?

When should an organization start identifying and grooming future leaders?

It’s never too early to find and develop future leaders. Most companies don’t think about leadership until there is a pressing need. Unfortunately, by that point, it is often too late.

Start looking for leadership qualities during recruiting seasons and continue the process as soon as new professionals enter the organization. Leadership skills are just as critical to a company’s success as technical skills, so have a plan to identify and develop your professionals’ abilities in these areas.

How does the leadership development process begin?

Once you have identified a potential leader, you need to have a conversation with that individual and find out what he or she wants. There is no use trying to develop leadership skills in someone who has no desire to grow into a leadership role.

Next, you should work to build consensus among key management that you’ve found the right person. From there, the process becomes much more particular to the people with whom you are dealing. Determine what motivates each individual. Explore each person’s personal and professional goals and get each to take ownership of his or her own development.

What is the single most important skill that a future leader must develop?

Without a doubt, it’s emotional intelligence. Leaders must know how to identify and manage their feelings. There is an extremely high correlation between emotional intelligence and top decision makers. It’s also important to be able to recognize the emotions of others and to understand how these emotions can affect a situation.

When teaching emotional intelligence, start by teaching concepts, building an awareness of how emotion can cloud and affect decisions and actions. Also try to use real-world situations as teaching tools. Don’t tell anyone how they should have acted. Instead, develop critical thinking skills by reinforcing concepts and working with them individually until they find solutions on their own.

Leaders of Tomorrow Why it’s important to start investing in your future leaders today

by Michael Arklind

ABOUT THE AUTHORMichael Arklind is the learning and development manager at Sensiba San Filippo with over 7 years experience. He specializes in coaching and organizational development. Michael can be reached at (925) 271-8700 or marklind@ssfllp.com.

How can coaching and mentoring help leaders develop?

Coaches and mentors are both important, but they play very different roles. Use coaches to help individuals become critical thinkers and problem solvers. Coaches also can help individuals develop specific skills that they will need to advance in their career.

Mentoring is a long-term process and is intended to support a professional’s overall development rather than building specific job skills. Mentors are critical to teaching emotional intelligence. They need to be advocates, so they usually aren’t direct supervisors. Good mentors build trust and create a connection with the individual with whom they are working that allows a deep level of openness and honesty, which is critical to an individual’s professional development.

To successfully develop future leaders, you must make leadership an organizational priority. Find potential leaders early, engage them in the process and proactively work to develop critical leadership skills. The future of your organization depends on it. •

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Do you really need an audit?

How to know if your business needs audited financial statements

by Stephanie Tsiagkas

As a business owner, you know the value of audited financial statements. Audits provide essential credibility to stakeholders, both internal and external, regarding the

accuracy and reliability of financial information. Without the third party assurance provided by audits, lenders and investors would be rightfully leery of making loans and investments.

While audits can be very valuable, there are also other financial reporting solutions that can be simpler and even more effective in the right situations.

What are financial statement audits and when are they necessary?

Financial statement audits provide the highest level of assurance and can be extremely useful in securing equity and debt financing from third parties. Audits provide an unbiased, objective examination of the financial statements of the company, including the selective verification of specific information such as inventory. Audits require gaining an understanding of internal controls, testing of selected transactions and communication with third parties. At the conclusion of an audit, an auditor will issue a report on the financial statements, which can be shared with third parties, containing the auditor’s opinion as to whether the financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles (GAAP). If you need a high level of assurance for external stakeholders such

as banks when trying to secure a loan, an audit can be extremely valuable.

When is a full financial audit not the best solution?While there is no doubt audits are valuable tools, a financial audit

isn’t always the best or the only solution. When the level of desired assurance does not require a full audit, a review, compilation or agreed-upon-procedures engagement may provide a simpler and more effective solution. Reviews are less extensive and provide the next level of assurance below an audit. Businesses in their first year of operations or businesses that are winding down operations can often benefit greatly from a review. Reviews typically take less time and cost less than financial audits. While banks often initially request or require an audit, they may, depending on the situation, be willing to accept a review instead.

Compilations can provide value in the right circumstance. While they do not provide any assurance — they assume the data provided by management is accurate — they can be very useful when businesses need to organize and standardize financial reports for internal use. Compilations also can be accepted by banks when seeking smaller loans.

Agreed-upon-procedures engagements are designed to provide a report of findings based on specific procedures performed over specified information. When a need for reporting is limited to

ABOUT THE AUTHORStephanie Tsiagkas is an audit partner at Sensiba San Filippo with over 16 years experience. She specializes in accounting and managing business risk for privately held technology and venture capital clients. Stephanie can be reached at (408) 286-7780 or stsiagkas@ssfllp.com.

specific information or transactions, a financial audit may cover a lot of unnecessary ground and fail to address critical reporting topics.

For example, some retail lease agreements provide for lease payments that are contingent upon the revenue of the tenant — when the tenant brings in more revenue, rent increases. In such a case, an agreed-upon-procedures engagement could provide targeted testing and reporting to the lessor that revenues have been accurately reported. A full audit would provide broad assurance at significant cost, but may fail to provide detail testing over reported sales numbers.

Which report is best to use?Each report is designed to suit specific circumstances. Your

internal needs and budget, as well as requirements from your bank or other parties, will determine the right solution. While large loans may require audited financial statements, banks may be willing to accept a review or compilation for smaller loans. If you don’t believe a full audit is necessary, you may consider asking your accountant for his or her opinion or even asking your lender if he or she will accept a review or compilation. It won’t hurt anything to ask, and it just might save you a lot of time and money. •

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Information and data are critical to the operation of every business. Whether running a local law firm or a

multinational manufacturing operation, information technology systems are essential to your ongoing success. As data and technology become more and more entrenched in business operations, they can also represent a serious vulnerability. Data connects, facilitates and supports every part of most organizations. What happens if disaster strikes and critical information is suddenly unavailable?

For many businesses, a loss of data or system functionality would be a catastrophic event. Every second without working technology systems may lead to a significant loss in revenue. So how can businesses protect their technology systems and plan for efficient recovery when disaster strikes?

What are some causes of a disaster?Threats to technology systems can come

from many different directions. Hardware failures, human error, and natural disasters such as fire, floods and earthquakes can threaten hardware systems and the data they store. Software corruption, viruses, ransomeware and other unseen threats can also hit at any time, regardless of how well-secured a system may be. And for every known threat, there are many unknown threats that are hard to predict.

How should a company approach disaster recovery?

First and foremost, information security and disaster recovery should be approached strategically at the organizational level. Business owners need to take a proactive approach to protecting their businesses and their clients’ data. In today’s relatively ‘hostile’ IT environment with increasing threats, business owners can no longer hope

that their IT teams have it under control. They need to plan for a disaster to occur and proactively have a recovery plan in place. Involve stakeholders throughout the organization, and identify critical processes that could be affected. Ask a lot of what-if questions, identify your most significant vulnerabilities, and develop an overall business strategy to sustain and restore your business operations in the event of a disaster.

What components should a good disaster recovery plan include?

There are several critical components that every disaster recovery plan should address. The first is a critical process assessment.

Understand how critical processes throughout the organization are affected by your technology systems. You’ll also need good back-up procedures. Good, clean data is critical to recovery.

Next, you should develop recovery procedures. Your recovery plan should lay out in detail, instructions for each step that must be taken. Implementation and testing procedures will give you the peace of mind of a successful disaster recovery.

Finally, you’ll need a good maintenance plan. Swiftly changing technology, processes and threats will require your

Disaster Recovery Preparing your data, and your organization, for the unexpected

by Igor Zaika

ABOUT THE AUTHORIgor Zaika is the information and technology director at Sensiba San Filippo with over 16 years experience. He specializes in technology architecture, integration and strategic planning for small to medium size privately-held businesses. Igor can be reached at (925) 271-8700 or izaika@ssfllp.com.

recovery plan to be frequently updated to remain effective.

Can the cloud and other technology help?

Utilizing cloud technology can be a great way to gain productivity, simplify your infrastructure and minimize potential risks of a disaster. However, before embracing the cloud, understand the impact to your business processes, compliance requirements and of course, your employees. Technology can be very useful in protecting your business from disaster, but it is important to understand that no single piece of technology constitutes a recovery plan. A great example of utilizing cloud technology as a part of your disaster recovery strategy is an all-in-one backup appliance. It allows you to protect your assets, simplify disaster recovery and replicate data to the cloud for added protection.

Disaster recovery should be a part of every organization’s strategic plan. Data and technology are too important to leave anything to chance. Find a technology partner that you trust and work with them to design, implement and troubleshoot a comprehensive disaster recovery plan. Taking a proactive approach today to disaster recover will ensure your success tomorrow. •

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Closing your books at the end of each month might not be the most exciting part of running a business,

but efficient and accurate monthly closings are important for any organization. Month-end closings are not only essential to effective fiscal governance, they also provide management with financial information that drives strategic decisions. The sooner your management gets good information, the more quickly they can respond — and organizational agility can be an enormous competitive advantage.

Learn how businesses are transforming month-end closings from a cumbersome and stressful process into a value driver for their management.

Why is a streamlined month-end process important?

Month-end can be a very stressful time for finance departments. Management is often eager to get their hands on financial information that will inform their decisions. Developing an efficient, ‘streamlined,’ process for month-end will create a more relaxed environment, free up man hours and ensure that your management receives accurate and timely information. When month-end is completed quickly, you can adapt sooner, capitalize on more opportunities and make better strategic decisions.

What pitfalls can slow down the month-end process?

Even a well-designed process can become obsolete as needs change or become cumbersome over time. When data is not recorded correctly throughout the month, it creates a tremendous burden on the month-end process. Finance professionals often find themselves looking for missing expenses, searching for expenses that have been entered multiple times, or correcting items that were coded or categorized incorrectly.

Process and procedural problems aren’t the only things that can slow down month end. Many companies spin their wheels tracking information in greater detail than is ever needed. A swollen chart of accounts may require detailed tracking that provides no organizational value.

How can an organization simplify and improve the month-end process?

Before you can fix a problem, you first have to recognize it. Look out for signs of stress within your month-end process. These symptoms might include monthly closings dragging longer and longer into the next month, finance professionals putting in significant overtime at the beginning of each month or general tension related to the process.

Once you decide that your month-end closing process isn’t working, you need to diagnose the problem and take corrective action. Do you have a cumbersome process that is creating unnecessary work? Consider simplifying your chart of accounts.

Month-end problems can also be caused by a failure to define and follow effective recording procedures throughout the month. Set strong deadlines for critical tasks and monitor adherence to your procedures. Many of the symptoms that you see during month-end are actually a manifestation of ongoing problems.

Once your ongoing accounting processes and procedures are fine-tuned, there may be opportunity to improve your closing process as well. Analyze your month-end routine. Follow a checklist, but be able to think outside of it. Ask a lot of questions. ‘Why are we doing this?’ ‘Should we be doing this?’ ‘Are there steps in our process that don’t accomplish anything?’

What else should business owners know about month-end?

Financial accounting, which includes the month-end process, is an important function within any business. It can either positively or negatively affect overall business performance. Business owners shouldn’t hesitate to ask for outside help when they need it. Experienced accountants can help setup a system that works for your specific needs. Professional expertise and experience can be very valuable. It can save a lot of time stress and angst over the long-term. •

Shortening Month-End Tips for an efficient, successful month-end close

by Jennifer Henson

ABOUT THE AUTHORJennifer Henson is an experienced senior business services associate at Sensiba San Filippo with over 15 years experience. She is an expert in QuickBooks and transactional accounting. Jennifer can be reached at (408) 286-7780 or jhenson@ssfllp.com.

Amr Salahieh + ShifamedA Story of Medical Device Innovation Reinvented

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Amr Salahieh is a seasoned medical device entrepreneur with more than 20 years of experience. He

is the founder, president and CEO of Shifamed, LLC, a Campbell, California, based medical technology incubator focused on developing new medical products from concept to commercial release. Prior to founding Shifamed, Salahieh was also the founding President and CEO of Sadra Medical, a percutaneous aortic valve replacement company that was sold to Boston Scientific for $450 million (including milestones) in January 2011. Amr is an inventor/co-inventor of 64 US issued patents and 104 pending patent applications.

By his own profession, Amr Salahieh is many things – a scientist, a businessman, an entrepreneur, even once an aspiring doctor. He has been all of these things for many years, but it’s his latest confession - that his greatest invention may be the process of innovation itself - which makes his story so compelling. To understand why and how Salahieh innovates, you first have to understand what drives him. To understand that, you have to understand where he comes from and perhaps more importantly, where he’s planning to go.

In some ways, Salahieh’s story isn’t so different from many other Silicon Valley entrepreneurs. He is well educated - he attended boarding school in France before immigrating to the United States to study at Case Western University. He worked inside bigger companies and with larger development teams. He found an opportunity and struck out on his own; taking the lessons he had learned to build the business that he wanted to build.

While the middle of Salahieh’s story may sound familiar, both the beginning and the destination chart a different course.

The Aspiring PhysicianEvery innovator has a story. Salahieh’s

started in his home country of Syria, where he dreamed of one day becoming a physician. Surrounded by war and violence, a young Salahieh envisioned a future in which he could help others. “I have always been interested in helping people. For

me that meant growing up to become a physician,” says Salahieh. His secondary education started in Lebanon, before his parents, looking to get him away from the political situation in his home country, sent him to boarding school in the south of France to finish high school. “English is actually my third language, French came second,” says Salahieh. When it came time to decide where to continue his education the answer was simple. “The U.S. college education system was much more versatile. I felt like I could start down one course of study without limiting my options moving forward.” Looking for a versatile education, Salahieh headed to the U.S. and enrolled at Case Western University. Salahieh’s belief in a broad education was quickly rewarded in an unexpected way. “It didn’t take me long to discover that being a physician wasn’t for me. My passion and my attention were focused elsewhere.”

“I have always been interested in helping people. For me that meant growing up to become a physician.”

“It didn’t take me long to discover that being a physician wasn’t for me. My passion and my attention were focused elsewhere.”

Moving on from medicine, but not his dream of helping others, Salahieh looked for a different challenge. He decided on a double major in biomedical engineering and electrical engineering. With his belief in a versatile education reinforced and his course of study adjusted, Salahieh set the course that would lead him to his professional career.

Looking for an Opportunity, Learning to Innovate

Upon graduation from Case Western, Salahieh’s next career move had a very simple motivation. “I wanted to stay in the U.S. I didn’t have a green card, so it was a very stressful time,” says Salahieh. Salahieh’s search led him to a company called ACS, short for Advanced Cardiovascular Systems. ACS was based in California and had one very important differentiator that drew Salahieh’s attention. “They didn’t require a green card,” laughs Salahieh. “It was an easy decision.” Salahieh’s work at ACS started with an internship, but eventually provided him with the opportunity to see the inner workings of a company built around innovation and development. “The first project I was involved with really didn’t go very far, but I learned a tremendous amount,” says Salahieh. What did he learn? More than any other thing, Salahieh believes the experience taught him an important lesson about how not to approach innovation. “We were a technology looking for a problem to solve. I learned very quickly that you have to start with a problem – not a solution.” Salahieh’s takeaway was simple, yet it had a powerful impact on his future ventures. Another thing at ACS also caught his eye. “Within that culture of innovation, the best guys didn’t stay. They were always moving on to start their own thing,” explains Salahieh. It wasn’t long before Salahieh also felt the pull to do his own thing. He left ACS to join Cardiothoracic Systems, a medical device startup that went public in record time.

Developing the FormulaSalahieh was beginning to aggregate

his experiences and lessons learned into a formula for future innovation. “What I learned from Cardiothoracic Systems was invaluable and had to do much more with how to build a company as opposed to just how to run a project,” explains Salahieh. Specifically, Salahieh learned not to restrict development alternatives. Much like his approach to higher education, he

likes to start with options before zeroing in on a specific solution. “When we start companies, we don’t start with a specialist. We start with a generalist,” Salahieh says. “We start with someone who is very versatile, who can interact with someone who is very specialized. I actually want someone who isn’t afraid to make mistakes.”

Salahieh sums up his approach in four steps. “First, pick the right problem to solve. You have to pick a good problem. It has to be something that a lot of people need to have solved, and it has to have a viable market,” explains Salahieh. “Next, I like to find new technology to apply to the problem,” says Salahieh. The third step is being flexible. “You have to keep your eyes open and be aware of what your research is showing you, and you have to be willing to change directions.” Finally, Salahieh reveals the final step in the equation. “You have to get lucky. A big part of what we do is just happenstance. Successful innovators, more than anything, understand how to prepare to get lucky.”

In the years that followed his time at Cardiothoracic Systems, Salahieh tested, proved and refined his method, building a track record of success along the way. Salahieh led successful innovation at Sobek Medical where his team developed a temporary intravascular filter on a guide wire that was eventually sold to Boston Scientific. He later founded Sadra Medical, a percutaneous aortic valve company which was also sold to Boston Scientific.

Shifamed—Innovation through Preparation

With enough success as an inventor and businessman to last a lifetime, Salahieh still wanted more. He wanted to turn his formula into a repeatable process. For Salahieh, the next step was to create a business model from his formula for innovation. “In the past, I had always developed products and companies one at a time,” explains Salahieh. “That can work out, but it also

puts you at significant risk.” With several successes behind him, Salahieh wanted to institutionalize his formula for innovation. ”I wanted to be able to pursue multiple early projects at the same time – increasing our odds of success,” explains Salahieh.

For Salahieh, institutionalizing innovation meant creating a company that embodied his approach. He wanted to keep his options and his eyes open, and he wanted to be prepared to get lucky. “The difference between success and failure is often the ability to recognize opportunity and the preparedness to take advantage of happenstance,” says Salahieh.

Finding opportunity and being prepared to get lucky became the driving force behind Salahieh’s vision for his new company – Shifamed. Shifamed is Salahieh’s brainchild, the result of his vision to shift the paradigm in medical device innovation. “Shifamed is all about being prepared to innovate,” says Salahieh. Being prepared meant investing in and maintaining an infrastructure to support a rapid response to an opportunity. “I wasn’t setting up a large-scale production facility. I was setting up a skunkworks lab of sorts. A place where people could work together, challenge each other and learn from each other,” Salahieh explains. “I wanted to put people with different skill sets together in the same space. We actually encourage people to crowd each other a little bit.” At Shifamed, Salahieh wanted to recreate the environment at some of the most productive labs in history. “You

“The difference between success and failure is often the ability to recognize opportunity and the preparedness to take advantage of the happenstance.”

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look at the some of the old labs, the most productive labs, the Bell Labs. They crowded people with various disciplines in the same building. It was very productive and a lot of things came out of that environment.”

To Salahieh, Shifamed is all about cultivating an environment for innovation and being prepared to get lucky. “A big part of what we do is nurture human resources. Even if we are going through a difficult period, we try to maintain some core elements that allow us to jump at the next opportunity. That’s one of our primary competitive advantages. Our investment in preparation, both in terms of facilities and human resources, allows us to act on an opportunity faster than our competition.”

So far, the Shifamed experiment has been a success. In 2012, Shifamed sold Maya Medical, a renal denervation company, to Covidien for $230 million in cash and earn out payments. To Salahieh, it’s just the start. “We just got a second round of funding for a company called Apama Medical, which is an atrial fibrillation company. Atrial fibrillation is a growing disease, yet only a small portion of the patients that need to be treated are treated,” says Salahieh. “The challenge is that current procedures are tedious, time consuming and they aren’t very predictable. It’s getting better with new technology, but it’s still not where it should be and will be in the next few years. Apama is trying to improve the safety and the effectiveness of these procedures.”

Another Shifamed company, Kalila Medical, is developing catheters that address delivery and access challenges seen in complex electrophysiology procedures and vascular interventions. Other companies, like Atia Medical and PeriAblation are still in stealth mode. For Salahieh, it’s the realization of a vision – multiple companies and multiple products arising in parallel from Shifamed, at the intersection of luck and preparedness.

Defining SuccessWith many commercial successes behind

him and the potential for many more to come from Shifamed, Salahieh still defines success in much the same way he did when he left France for the U.S. “The most important measure of success, for me, is products being used in patients,” explains Salahieh. “When the products that we have worked on are actually being used in hospitals and operating rooms - that is the ultimate measure of success.” The student who dreamed of being a physician in order to impact lives is still driven by the same goal. “I may not impact lives as directly as a physician, but our products have an impact by helping physicians do their job better. Ultimately, I will judge my success and the success of Shifamed by the positive impact of our products.”

Salahieh is also driven to maximize his impact by perfecting the process of innovation. “I view Shifamed as a way to expand our impact. We’ve invested in a development engine that fosters creativity and innovation where we can solve multiple problems at the same time. It’s a great model to create value, but I also think it provides the opportunity to have the greatest impact in the lives of patients.” •

“Our investment in preparation, both in terms of facilities and human resources, allows us to act on an opportunity faster than our competition.”

What is the best advice you would give an individual who has a concept in their head for a life changing medical device, to progress their idea from a vision to actually getting it in front of a decision maker like yourself?

In many ways, we are not so different from many other types of startups, but one significant difference that affects innovation is the regulation in our industry. In the medical device industry, you have to go through the regulatory processes, not just the FDA (Food and Drug Administration) and foreign versions of the FDA, but it’s also about reimbursement and insurance. If I have a really good idea for a device that can save lives, but there is not a good way for insurance companies to accept it and pay for it, there is really no way to monetize it or bring it to the marketplace.

You also have to look at what it will take for your product to be accepted in a hospital. Previously, we did not have to worry as much about the product’s price or path to reimbursement. That would get resolved when the product was commercially available. Those days are over. Today, we need to understand how a product will be reimbursed even before a prototype is developed. In addition, the physician has less and less ability to influence the purchasing and introduction of new products into the hospital. The majority of physicians are becoming employees of larger hospital organizations, where decision making processes for inventory and new products are being made by administration and the purchasers of the hospital. Another important insight is that health care cost reduction is on everybody’s radar. Today, your product’s value proposition has to demonstrate not only the efficacy and safety but also the cost

savings the device will have on the health care system.

Do you view companies like Shifamed as an important link between the startup, the ideas and understanding the environment, understanding the marketability of the products and what it is going to take to bring them to market?

I think they have to be. With the current state of the industry, it takes far more than just an idea to get a product to market. It takes approximately one to two years between concept and raising money from the outside. The key question we ask is, are we ready to raise money and to communicate the value proposition of our product? Before we raise money externally, we have to make sure we have checked all the boxes. First, we look at the market: Is it a big enough improvement; is it an interesting market? Second, we look at intellectual property: do we have something here that we can protect?

Next, we look at the business plan and reimbursement path: are the physicians going to be an enthusiastic adopter or too difficult to convince? What is the time frame for regulatory approval? How will we get reimbursed? Who are our potential buyers? Who has the potential to commercialize, monetize and distribute the product? By going through this checklist we are able to kill the worst ideas quickly. It’s very wasteful for us to spend too much time on an idea that does not meet our requirements.

What is the end-game or the business objective to your new ventures?

Achieving first-in-human research is a significant milestone for a startup, from a financial and R&D perspective.

For some devices, this is also one step closer to regulatory approval. Following human cases, you may be able to do an acquisition, or a structured deal, or raise more money. Up front we try to figure out how much money we need to invest before an acquisition may be triggered. At the inception of our development, we are very interested in making sure our concept is something larger companies would be interested in acquiring. Our expertise is research and development; not large-scale commercialization. We are designing products and building companies that will get sold to larger companies that can use their well-developed commercial channels to distribute them successfully.

Q: When do you start conversations with larger companies? How do you know that it’s the right time?

That is changing – the trend is much earlier in the development cycle and to talk much more frequently. That’s part of our initial homework. If I’m going tell an investor that if they invest, potential acquirers will buy in three to five years, I have to know what I am talking about.

What is your vision for where you are taking Shifamed? What comes next?

We are trying to turn rapid innovation into a repeatable process. We leverage key technical expertise, infrastructure and relationships, so that multiple early projects can turn into successful companies. Our true measure of success is to have as many innovative products reach the physicians and patients that need them.

Q &A with Amr

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ABOUT THE AUTHORP. Evan Stephens is a tax manager with Sensiba San Filippo with alost a decade of experience. He helps California companies take advantage of lucrative incentives – by identifying opportunities, managing the qualification and negotiation process and ensuring that incentives are utilized to offset tax liability. Evan can be reached at (408) 286-7780 or estephens@ssfllp.com.

Competitive California?How new tax credits are making California a bit more business friendly

by P. Evan Stephens

California has not always been known as the most business friendly tax

environment. While other states have tried to woo businesses with competitive incentive programs, California has long been content to allow the many other benefits of its economy to do its talking. When Governor Jerry Brown signed AB 93 and SB 90 into law, everything changed. California made a bold commitment to aggressively pursue expanding businesses, establishing a new office responsible for economic development and creating significant new tax incentives for businesses locating or expanding in California.

What should every California business know about these new incentives? Find out more about two of the most significant new incentives, the California Competes Credit and the New Employment Credit. Stephens helps California companies take advantage of lucrative incentives – by identifying opportunities, managing the qualification and negotiation process and ensuring that incentives are utilized to offset tax liability.

What is the Governor’s Office of Business and Economic Development?

The Governor’s Office of Business and Economic Development (GO-Biz) is a new office that was created to be California’s point of contact for all economic development and job creation efforts. GO-Biz has a range of

objectives that include attracting, retaining and expanding California businesses. They provide resources to assist with site selection, permit streamlining, clearing of regulatory hurdles and small business assistance, while they are also responsible for the administration of tax incentives, including the California Compete Credit and the New Employment Credit.

What is the California Competes Credit and how can businesses qualify?

The California Competes Credit (CCC) is a credit against income tax for businesses locating or expanding in California. Businesses must first apply for CCC credits before applications are evaluated through a two-phase review process. Phase I is an objective evaluation where a cost benefit analysis of each proposal will be performed. Applicants with the lowest cost to benefit ratios will be engaged to move forward to the next phase. During Phase II, GO-Biz will perform an in-depth subjective evaluation of each proposal considering a number of factors including economic impact, strategic importance and the location of the proposed expansion. GO-Biz is authorized to negotiate specific terms and conditions of tax credit agreements. $151.1 million is available for CCC credits in fiscal year 2014/2015.

How can the New Employment Credit bring value to California businesses?

The New Employment Credit (NEC) is more objective and straight forward than the CCC. To qualify for the NEC, a business must first be located in a designated demographic area. These initial areas include pilot areas in Fresno, Merced and Riverside.

Credits will be awarded to applicants based on wages paid to “qualified employees” during the credit year. NEC credits are equal to 35 percent per year for wages between 150 percent and 350 percent of the state minimum wage. The credit may be claimed for wages paid for 60 months from the original hire date. It should be noted, these credits can add up very quickly for qualifying businesses.

Location based restrictions will exclude many companies from taking advantage of the NEC, but companies located within the designated geographic areas, whether large or small, could benefit substantially. Implementing a system for identifying and qualifying new hires for NEC credits will allow for maximum benefit. California businesses should look closely at both the CCC and the NEC to determine eligibility. Applying for these credits is relatively simple and painless, especially when compared with the potential benefits. •

Commencing July 1, 2014, and continuing for the next 8 years, California will allow “manufacturers to obtain a partial exemption of sales and use tax on certain manufacturing and research and development (R&D) equipment purchases.” The tax incentives are designed to “create good jobs with middle class wages and benefits” within “areas of the state suffering from high rates of unemployment and poverty” (AB 93).

The new sales tax exemption created by AB 93 targets industries and activities rather than geographic areas, as the existing enterprise zone program had. This new statewide sales tax exemption will be available for R&D equipment purchases made by businesses engaged in manufacturing or research and development.

Qualifying businesses can exclude the first $200 million of eligible purchases per year from state sales and use tax. Qualifying property must be used 50% or more in the process of manufacturing or R&D.

In order to qualify for the exemption, businesses must meet all of the following conditions:• Engage in certain types of business, also known as a qualified

person• Purchase qualified property• Use the qualified property for uses permitted under this law

Qualified persons are defined as those working in any type of manufacturing business or those engaged in research and development in biotechnology, engineering, physical or life sciences.

Property eligible for the exemption includes:• Machinery and equipment• Equipment or devices used to operate, control, regulate or

maintain the machinery• Tangible personal property used in pollution control• Special purpose buildings used as integral part of the

manufacturing process

These new incentives are certainly worth investigating. Manufacturers and R&D companies will likely qualify for new sales and use tax exemptions. However, businesses need to understand that the game has changed. Just because your business qualified for credits in the past doesn’t mean it will in the future. This new tax exemption can be complex and difficult to understand. Sensiba San Filippo can help determine if your business and purchases are eligible. Additionally, we can address specific questions to the California State Board of Equalization to verify eligibility in writing to protect you from potential tax, penalties and interest.

New Tax Incentives New California Manufacturing and R&D Sales Tax Exemption

by Scott Anderson

ABOUT THE AUTHORScott Anderson is an audit and business services partner at Sensiba San Filippo with over 10 years experience. He specializes in working with family owned and closely held businesses to minimize taxable income while maintaining a strong balance sheet. Scott can be reached at (408) 286-7780 or sanderson@ssfllp.com.

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As the leader of a growing organization, you understand the challenge of balancing day-to-day activities with your strategic priorities. Many daily tasks simply have to be done, and with time, resource and personnel limitations, you may find that you and

your team frequently have to take an “all hands on deck” approach. However, when your daily responsibilities begin to supersede strategic priorities, both you and your business can quickly lose momentum.

The ability to make informed strategic decisions can separate thriving organizations from stagnating businesses. Informed decisions require having the right information at the right time. Accurate and up-to-date financial information can be a very powerful tool, yet gathering, organizing and interpreting that information can also very quickly become a distraction from your strategic priorities. How do smart business owners get the information they need without getting distracted? How can you get powerful financial information into your hands without slowing down your business?

For many businesses, outsourced accounting can be the right solution. As a business owner it is imperative to know when it is the right time to outsource your accounting and finance needs. Here are six steps to help you transform your financial accounting from a burden to a benefit.

1. Determine if financial accounting is driving or draining value within your organization

If you frequently find yourself rushing to put together financial reports, managing time consuming bookkeeping tasks or making decisions without the right financial information, it is time to look for additional accounting help. Accounting should not slow you down or distract you from the activities that truly drive the value of your business.

2. Evaluate internal and external solutionsIf your accounting resources are not bringing value to your

organization, you need to make a change. You can hire or change internal accounting personnel or you can outsource your accounting function. The right answer for your company will depend on your needs, budget and available options. Hiring an internal bookkeeper can be a great solution if you can find the perfect candidate — one that has the exact skill set that you need, is willing to work the precise number of hours that you require and demands a wage that fits squarely within your budget.

You may require a higher skill level. Skills like the ability to bring new ideas and efficiencies, develop budgets and forecasts, adept analysis and reporting, and the flexibility to grow with the needs of your organization. Outsourced accounting can be the solution.

3. Identify the right time for a changeWhen it comes to outsourced accounting, timing really

is everything. There are some easy to recognize clues that can dictate the time is right to outsource. If you need more technical skills than the receptionist, office manager or part-time bookkeeper can provide. Maybe a bank or investor group is looking for a level of financial sophistication that you don’t currently have. The right outsourced accounting solution can help you get set up and prepared. If you have had multiple failures trying to hire a good full-time bookkeeper, you are probably spending more time, money and effort to get the right solution than you should be. Outsourced accounting can even fill a temporary role, like when your bookkeeper is on leave for several months. If you are experiencing any of these scenarios, now would be the right time to outsource.

4. Explore available outsourced solutionsOnce you determine that outsourced accounting is a viable

alternative, you will want to find the solution that best fits your current and future needs. It is important to know that not every outsourced accounting solution is created equal. Solutions range from minimally trained bookkeepers best suited to data entry, to sophisticated business service firms that offer industry focused teams, custom financial reporting, bookkeeping, payroll, accounting technology and tax planning services. Your needs will determine the right solution for your company. If you are a growing company with expanding financial needs, an experienced business service team can provide the high-level assistance you need.

5. Select the right outsourced accounting partnerYour outsourced accounting partner should have the experience

to proactively bring new ideas and value to your organization. Look for a partner that leverages the latest technology and tools to keep themselves efficient and you informed. Look for an accounting provider that has familiarity with your industry and has the resources of a full-service accounting firm. Firms that specialize in outsourced accounting for small and midsized businesses are generally the best equipped to bring value.

Make sure to obtain referrals and check references, as not all providers deliver what they promise. Ask other business owners who they use for their outsourced bookkeeping services. Talk to references about what they like best and least about their outside bookkeepers, and don’t forget that this relationship should be reviewed at least once a year. Needs change and the right provider can change as well.

6. Invest in a plan and a relationship Once you have selected a partner to help with your accounting,

focus on building a value added relationship that will be continuously evaluated and modified to meet your changing needs. A good provider will invest the time to get to know your company and your needs before they implement a solution. Your adviser should help you improve both your processes and your financial information. With the right plan you can transform your financial accounting into a value driving resource for your entire organization.

Financial accounting should drive value within your organization. It should efficiently provide you with the information that you need to make the right strategic decisions. If your financial accounting solution isn’t bringing value, consider a change to outsourced accounting. •

Is it Time for Outsourced Accounting?by Scott Anderson

ABOUT THE AUTHORScott Anderson is an audit and business services partner at Sensiba San Filippo with over 10 years experience. He specializes in working with family owned and closely held businesses to minimize taxable income while maintaining a strong balance sheet. Scott can be reached at (408) 286-7780 or sanderson@ssfllp.com.

Transform Your Financial Accounting in 6 Steps

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While early stage businesses are frequently financed by a close group of owners, success often creates opportunities that necessitate outside funding.

Whether your business is experiencing rapid growth that is putting pressure on cash flow, or you are taking new technology to market and need an influx of outside equity, attracting outside funding will require establishing credibility in your financial statements.

So what can a business do to provide the necessary assurance to potential investors? The answer is an independent financial statement audit. Learning more about financial statement audits, how they work and what they can provide to businesses and investors.

What is an audit and why is it beneficial?First and foremost, an independent audit provides assurance

to third parties about the financial statements prepared by management. For management, playing the role of advocate creates an inherent conflict when it comes to sharing information with third parties — management has a vested interest in the result.

This is where a financial audit can provide tremendous value. A financial audit provides an objective, independent, third-party opinion on management’s financial statements. While an audit might seem like an onerous requirement, in reality, it can be the key that unlocks the door to outside funding and new opportunity.

Audit Time Understanding your first financial statement audit

by Ernie Rossi, III

How does the audit process work?The audit process is designed to efficiently analyze the financial

statements so that an auditor can issue an opinion.

From the standpoint of management, the desired result is an ‘unqualified opinion,’ meaning the auditor concludes that the financial statements provide a true and fair representation in accordance with the appropriate financial reporting framework.

If the audit process cannot resolve significant questions regarding representations of management, an auditor may issue a ‘qualified opinion’ or even an ‘adverse opinion.’

While an audit requires independence and objectivity, it also requires coordination and cooperation between management and the outside auditor. Financial audits generally have five phases including planning, risk assessment, audit strategy, evidence gathering and finalization.

What are the roles of the auditor and management?In the strictest sense, the role of the auditor is to take financial

statements and perform procedures so that he or she can determine whether the statements are fairly represented.

Auditors cannot be involved in the actual preparation of audit schedules supporting the financial statements, but they can provide templates, feedback and advice for management to help them prepare for a successful audit.

Management’s role in an audit is to provide the auditor with a complete, closed set of books for the audit period. While an auditor can provide guidelines for what he or she will need in order to complete the audit, management is ultimately responsible for preparing the required information.

Some companies have the knowledge and resources to prepare for an audit internally, but many organizations utilize outsourced controllers, CFOs or other accounting firms to help them prepare for an audit.

What should be considered when selecting an auditor?It is generally a good idea to work with an auditor who

understands your company and your industry. Industry knowledge helps auditors best assess areas of risk so they can focus the audit in the right areas to effectively minimize the risk of material misstatements.

Finally, and most importantly, find an auditor who is willing to make the audit a joint effort, not an adversarial relationship. Auditors must remain independent; they can’t be advocates for management, but they also don’t have to make the process combative. These engagements can be mutually beneficial. •

ABOUT THE AUTHORErnie Rossi is an audit partner at Sensiba San Filippo with over 25 years experience. He specializes in providing financial and business consulting services to clients in the manufacturing and distribution sector. Ernie can be reached at (650) 358-9000 or erossi@ssfllp.com.

1 Ask your accountant for a complete list of the documents and templates they will need.

Discuss these in advance to set expectations of timing and also to set critical events and delivery dates.

2 Provide the requested financial information on a timely basis, allowing for the

adherence to the agreed-upon timeline. Your timely delivery of documents will save you money in the long run.

3Use one point of contact between your team and your audit team. This will help cut

down on confusion.

3Tipsto help your auditgo smooth

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You make your products with the best of intentions. You work hard to provide consumers with newer,

better, higher quality products. What happens when a problem arises with a product that is already on the market? Products that malfunction or pose a danger to consumers can be a very real threat to any company.

For most manufacturers, product recalls are taboo even in casual conversation. Yet if you are in business long enough, it is likely that you will face at least one product recall. Will your recall be a bump in the road or a fatal accident for your company?

Learn how to manage product recalls, mitigating immediate financial losses while preserving the brand of the organization.

What financial exposures can result from a product recall?

There are many direct costs associated with a recall, such as shipping, storing, replacing or destroying defective products. Expenses for managing public relations can add up quickly as well.

Beyond direct expenses, other less obvious costs can loom even larger. Business interruption and lost profits are often the

greatest cost of a product recall. Product liability from products that cause bodily harm to consumers or damage to property can also increase risk exponentially.

Finally, don’t overlook potential damage to your reputation and loss of brand equity. Product recalls aren’t simple or inexpensive, but costs and potential risks can be managed with proper planning.

What pre-emptive strategies can help manage risk and financial exposure?

There are three strategies that companies use to manage recall risk: reduce it, assume it or transfer it. Reducing risk involves taking strategic actions to avoid recalls and the costs that come with them. Creating a ‘culture of quality’ that spans your entire business and supply chain can reduce the occurrence of recalls, while establishing crisis management procedures can help you minimize the effects of any recalls that do occur.

Companies may choose to assume the risk of a product recall by carrying high insurance deductibles or self-insuring. This strategy is best utilized only by very large companies because the cost of a single

recall could be catastrophic for mid-cap and small companies. Finally, transferring risk is a good idea for any organization. Suppliers and insurers can help you recover the cost of a recall. Before a recall event occurs, ensure that you are carrying the right kind and amount of insurance. Obtain coverage for all the risks you may face during a recall. Multiple insurance policies may be applicable. Additionally, insist that key suppliers carry product recall insurance, including third party coverage.

How should companies strategically approach a recall?

It is important when facing a recall to be proactive and to act quickly. Don’t wait for your hand to be forced. Voluntary recalls are easier to manage and generally less costly than mandatory recalls. By being proactive, you can better control the situation and the conversation surrounding it.

Take a long-term view of the situation. Don’t try to cover-up a problem. Communicate honestly. Consumers are more forgiving when you acknowledge a problem quickly and take corrective action.

Don’t underestimate the time, effort and expense required. Place your financial survival and the protection of your brand at the top of your priority list.

Finally, don’t try to tackle the problem alone. You will need legal, insurance and financial assistance to get through a recall. Your lenders and investors may have to bear some of the financial burden, and your CPA can help steer those conversations. •

Surviving a Recall How to navigate the financial risks and exposures of a product recall

by Karen Burns

ABOUT THE AUTHORKaren Burns is a assurance partner at Sensiba San Filippo with over 25 years experience. She specializes in working with rapidly growing manufacturing companies, from start-ups to multigenerational family businesses, helping them to identify opportunities, challenges, and trends. Karen can be reached at (925) 271-8700 or kburns@ssfllp.com.

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On July 10, 2014, the San Francisco Business Times held a forum to discussthe sustaining strength and continuing innovation in food and beverage manufacturing in the Bay Area with a group of executives from local F&B businesses. The conversation was hosted by the accounting firm Sensiba San Filippo LLP and moderated by San Francisco Business Times publisher Mary Huss.

Food & Beverage Innovators:Their Secrets to Manufacturing Success

Q: Why do you manufacture in the Bay Area?Gary Guittard: We need to be close to our customers. The Sierras are a big barrier to us servicing our customers – many of our clients buy chocolate in liquid tanks, so we have to be able to service them at a moment’s notice. When I was a kid, we had Hill Brothers, MJB, Folgers, and our company all South of Market within probably five or six blocks of where we are today, and they are no longer here. They were all originally here because we were in the Bay and could receive goods in our

port. We stay here because it is important to service our customers.

Shaun O’Sullivan: It is integral that we arein this area. Making beer in San Francisco, in the epicenter of craft beer, is vital for us. Sure it would be cheaper for us to build a facility in the Central Valley, but we would not see the kind of people we have coming to our San Leandro facility or our pub in San Francisco.

Tim Fallon: We trade on the foodie nature of San Francisco and think of that as part of

Karen BurnsPartner & CPASensiba San Filippo

Reem Rahim HassaniCo-Founder & Chief Brand OfficerNumi Organic Tea

Shaun O’SullivanCo-Founder & Brewmaster21st Amendment Brewery

Gary GuittardPresident & CEOGuittard Chocolate

Tim FallonPresident & CEOColumbus Foods

Introduction by Karen Burns: Good morning, everybody. Sensiba San Filppo does have a strong focus in the area of manufacturing, particularly in food and beverage. So, it really was our delight to be able to sponsor today’s event.

Over the years I’ve learned a bit about why manufacturers like the Bay Area, their challenges here and the benefits for why they stay. Clearly it is about innovation, and I am not going to steal the thunder of our panelists later today, but being in the heart of Silicon Valley clearly just means innovation. It is sort of defined by innovation. Being able to have your R&D really close to where you do your manufacturing is critically important. Also, San Francisco is known as a food mecca around the world. When you put manufacturing together with food, it just speaks of the San Francisco Bay Area.

Some of the key things that my manufacturing clients and the constituents that I work with are facing is how to find talent. How do we supplement that middle management? There are a significant number of resources that are working on that issue right now. {See 8 resources on next page}

In terms of the future of manufacturing in general and the future of food and beverage, we are now in a digital age. IT is a necessity. It is not a luxury. Automation and robotics are discussed a lot here. Some people are concerned that it means losing jobs, but we find you have to hire more people because of growth and efficiency. It is key component in the circle of growth.

As Mary mentioned, I am a CPA. On the accounting side, hopefully most of you know that effective July 1, there’s a new statewide incentive that allows you to not have to pay the State portion of sales tax up to $200 million of equipment that you put into place. It’s a great time, actually, to invest in capital equipment because you’ll see a little over 4 percent right now when you put that into service.

Without further adieu, I am going to pass this back over to Mary because you guys are here to listen to the panel, not me, but I appreciate your time and thank you so much.

our branding. The type of business we are in is very capital intensive and the assets have been here for a long time. If we were to do it again, we would move somewhere closer to the supply, which would be the Midwest. But this is where we are we try to do the best we can.

Reem Rahim Hassani: Northern Californiais the hub of innovation. I think that being by the port is beneficial and because of ourco-packing, this is the best place for us. In general, starting here versus somewhere like the Midwest, the receptivity to our

1. East Bay Manufacturing Group / SFMade

2. Manufacturing Extension

3. Partnerships (MEPs) - Manex

4. Design it - Build it - Ship it

5. Economic Development Agencies

6. Workforce Development Agencies / WIBs

7. Employment Training Panel (ETP)

8. Community Colleges

8

products, and our values has been better than we could have ever expected.

Q: How big of a role is brand building?Shaun O’Sullivan: When we started packaging our beers in cans, which nobodywas really doing then, the conversation wasmore about the can then the liquid inside.It provided an opportunity because our beer comes in a box and that allows us to illustrate and tell our story in the 360 degrees around the product. It really helps us stand out when you are on the shelf competing with other craft brewers.

Gary Guittard: People want to know aboutfood, about where it came from and the people that produce it. We want to tell that story as well as do something different to stand out from the crowd of everyone else – people still have a difficult time distinguishing if we are the same as another San Francisco chocolate company: Ghirardelli.

Reem Rahim Hassani: People approach me saying what a great company we are and I have to attribute that to the brand values we exude. From the care that we put into every cup, to the packaging and the supply chain we have. All of these elements mirror our values. We also really grew first throughword of mouth.

Q: How are you looking at growth and innovation in your company?Shaun O’Sullivan: There is a saying in the beer business that if you are not growing, you’re dying. Craft beer is huge right now and the international market is largely untapped. Japan and Europe are going to be awesome opportunities for us. It is important to remember that America sells across the globe.

Reem Rahim Hassani: We tend to innovateall the time, too fast for my pace sometimes.But that gets us more shelf space and brandrecognition. We launched flower teas, fermented teas, savory teas and are about to launch chocolate and turmeric teas too. New products are one of our primary pipelines of growth.

Tim Fallon: We are focused on innovation,but in the meat business it can be tougher. We are taking out nitrates, antibiotics and binders – things that have been in meat products for centuries – and reformulating.It has been a difficult process, but that is where we need to innovate.

Q: Does the Bay Area have the talent pool you need?Gary Guittard: Hiring personnel is always a challenge. Finding people with people skills on a supervisor level is really hard. We also work with major, sophisticated equipment so there is also a big challenge in getting maintenance staff that can work on that level.

Shaun O’Sullivan: We are going through an expansion and hiring a lot of engineers and even brewers but there is a lot of science involved – there is no just pushing of a button. So hiring keeps us up at night.

Tim Fallon: We need access to more mid-level supervision and those that can handle the equipment we have. We have Maserati equipment in our plant and the workforce has to be able to get under the hood and not wreck it. There is not a plentiful supply of this talent and we end up stealing them from each other, basically.

Q: How important is social media?Reem Rahim Hassani: We have a social media PR coordinator and that is all she does. We also work with bloggers – blogging is a big thing. I think it is about constant engagement. It is about always monitoring what’s going on and the dialogue around your brand. Our social media coordinator also keeps a calendar of all the activities and themes we share around each month. We also do a lot of sampling that helped us increase or Facebook following by 5,000 people overnight. There are a lot of different mini-tactics you can try out and see what works.

Shaun O’Sullivan: I think it is vital. When we started, I was the guy that tweeted all the time. It is exhausting, absolutely exhausting. So we recently hired a PR firm and I will look at the feed and say, “Thank God this person is doing it.” We run different campaigns around people sharing selfies and that sort of thing. You have to maintain the conversation. We are also excited about being in AT&T Ballpark and the interactions that will spur.

Q: In growing your company, how difficult is it to access capital, or take on equity investors?Tim Fallon: Our company was started by five Italian families and at some point in time they aren’t going to agree on a lot of things so they brought on private equity in 2006 as they sold 79 percent of the business. We sold more of the company into private equity again in 2012, two years after I came on as CEO. When you compare our business to those that are still family run, the big difference is in the amount

Resources For Talent

of leverage we can work with – it all boils down to the numbers.

Reem Rahim Hassani: I think finding the capital isn’t so difficult. Our preference is loans so that you don’t give up equity shares in your company. Prior to that it was investment capital, which is not that difficult to come by in the growth sector of the food economy. It is just a matter of finding the right partner, making sure they are aligned with your company values and how you want to grow the business.

Q: What might we see from your company in the near future?Gary Guittard: We are on the quest to make a superior milk chocolate. There has been incremental degradation in the industry for 40 years and I want to recapture that flavor in a good milk chocolate.

Shaun O’Sullivan: New packaging. The variety packs for our beers, those are important to me. I also have a million recipes and collaborations I want to get to, so expect collaborative efforts from 21st Amendment as time rolls on.

Tim Fallon: We are starting to expand the Columbus trademark to other food marketsbut with meat still being the main component. We are going to launch an all-natural take-and-bake pizza.

Reem Rahim Hassani: We toy with ideas outside the category but still with tea. So tea beer, tea chocolate, tea ice cream. •

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A leaner SOC 2What the AICPA’s new SOC 2 guidelines mean to your organization

by Brian Beal

If your organization provides services that include handling valuable data, the success of your business may depend on your ability to demonstrate effective internal controls. To meet this

need for assurance, the American Institute of Certified Public Accountants (AICPA) introduced Service Organization Controls (SOC) reporting in 2011. While SOC reporting included three different reporting options: SOC 1, SOC 2 and SOC 3. SOC 2 was designed specifically to meet an entirely new type of assurance — assurance over controls not related to financial reporting.

Now, just three years into SOC 2 reporting, the AICPA has made a comprehensive effort to improve SOC 2 reporting standards. Why did SOC 2 need a comprehensive overhaul? How will these changes affect your organization? We’ll discuss what service organizations need to know about the changes to SOC 2.

Why were SOC 2 standards updated and why was the update important?

While the original SOC 2 provided a critical assurance tool, users of SOC 2 found it too difficult to administer and understand. A SOC 2 evaluation could cover any or all of five Trust Service Principles (TSPs), which included security, availability, processing integrity, confidentiality and privacy.

Some organizations may have only desired a report to cover one of the TSPs, but other organizations needed assurance in multiple areas. While the TSPs could have shared many common test criteria, the initial SOC 2 procedures required time-consuming redundancy in testing these criteria, meaning that testing for multiple TSPs could be extremely costly and drain resources.

Additionally, end users of SOC 2 reports found them to be voluminous and difficult to understand. If the reports were too complex for readers, it was difficult for them to achieve their original objective, which is to provide assurance to users of the reports.

What were the biggest changes to SOC 2?The new guidelines have made SOC 2 reporting simpler, more

efficient and more useful. First, the list of five original TSPs has been shortened to four, as privacy follows the generally accepted privacy principles (GAPP) and is being revised separately. Next, redundancy in testing has been significantly reduced as more than 120 testing criteria have been reduced to 28 core ‘criteria common to all principles.’ Now, each TSP starts with the same basic 28 principles. Testing for availability requires three additional criteria, while processing, integrity and confidentiality each require six additional criteria. Whether you are testing for one TSP or multiple, the testing process will now be less painful.

In addition to simplifying the testing process, the format of the actual report will change as well. A new risk assessment element can now be used to identify risks and correlate those risks with the criterion being examined. Risks will be documented within the SOC 2 final report in order to show how each control is specifically mitigating the risk identified. The result is a clearer, more valuable report for both service organizations and stakeholders.

How will the changes improve the evaluation process?The nature and intent of the SOC 2 report hasn’t changed. The

new guidelines simply seek to clarify and solidify the array of control criteria. The process should now be simpler, reports should be more consistent and the entire process should provide greater value to both service organizations and stakeholders.

What actions do I need to take?The 2014 version of SOC 2 is already published and supersedes

the previous version for periods ending on or after Dec. 15, 2014, while the AICPA is encouraging early implementation. Be sure your next SOC 2 report is utilizing the newly released standards. The process and the result should be significantly improved. •

ABOUT THE AUTHORBrian Beal is a manager with Sensiba San Filippo’s Business Process Assurance group. With over 15 years experience, Brian is CISSP and CISA certified. He specializes in information risk management and assurance services. Brian can be reached at (925) 271-8700 or bbeal@ssfllp.com.

SSF In The CommunityThe people of Sensiba San Filippo not only live, work and play in the Bay Area, but are committed to finding ways to better our community and ensure its longevity as well. This past year our entire SSF team spent a day at St. Vincent de Paul’s South San Francisco donation center to ready many donations for the upcoming holidays.

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Rockstars Wanted.We are looking for a few good rockstars

to join our band of accountants.

Come see why we are the right fit and let us rock your world!

www.ssfllp.com/careers

Become a member of our team and we will commit to both your professional and personal growth. We will provide you with appropriate support

and resources at each stage of your career to guide and foster your success.

We Take Professional Development SeriouslyOne of the best aspects about SSF’s size is that you will gain the experience of working with clients directly and working with different aspects of a project more quickly than with a larger firm. We are large enough that you can specialize in specific industries or areas of technical expertise that appeal to you. SSF frequently hosts both in-house and external trainings to keep you educated on “best practices” and innovative techniques.

We Offer Competitive Salaries and BenefitsSSF offers a very competitive salary and benefits package, including medical, dental and vision coverage, and 401(k) for all full-time employees.

Sensiba San Filippo has developed, built and sustained its professional reputation and loyal client following solely on the talent and efforts of our team.

We’re Proud Of Our Culture!At SSF we work together, we play together and support one another. Our firm’s core values are…Family – Community – Firm…in that order. Those values are set from the top and are echoed throughout the firm. While we expect nothing less than each other’s highest level of effort on the job, a big part of who we are revolves around knowing that life’s not all about work — we believe that it’s equally important to appreciate family and have fun.

We care about our employees’ health and well being and offer a comprehensive wellness program that includes healthy office snacks, discounted fitness memberships, on-site chair massages during busy season and participation in firm softball games, golfing tournaments or group walkathon fundraisers.

SSF also has a very diverse staff from many different cultures and backgrounds. Approximately 65% of our employees are women.

925.271.8700 | ssfllp.com

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With over 35 years of accounting knowledge and expertise, we understand your frustrations and what makes your head hurt. We strive to give our clients the relief and peace of mind they need to run their business headache free.