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Little Book of Best Writing

Practices

Accounting and Information Systems Eli Broad College of Business

Michigan State University

THINK 1. Analyze your audience. 2. Assess the situation. 3. Identify your purpose. 4. Determine the appropriate mode.

CREATE 5. Develop a thesis statement. 6. Brainstorm. 7. Create a “blueprint” or outline of your document. 8. Write a preview statement. 9. Write an introduction. 10. Write the body paragraphs. 11. Add transitions. 12. Develop a conclusion. 13. Revise.

DELIVER 14. Polish your document.

REFLECT 15. Review the document from the perspective of your audience. 16. Check your grammar and word choice. 17. Eliminate unnecessary words. 18. Seek additional feedback.

THE WRITING PROCESS MODEL AT A GLANCE

THINK

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ANALYZE YOUR AUDIENCE.

Identify the primary and secondary audiences for the document. The primary audience is the intended reader. The secondary audience is anyone else who may read the document.

For example, a partner at your firm asks you to write a letter informing a client of the tax consequences of a recent real estate purchase. The client is the primary audience. Because the partner will review and approve the letter before it is mailed, the partner is the secondary audience. Your letter should meet both audiences’ expectations.

To analyze your audience, you should assess the members’ demographics (e.g., age, gender, race, job status, education, experience) and psychographics (e.g., values, beliefs, opinions, self-interest, emotional state). As part of your analysis, ask yourself two important questions: • What does my audience already know? • How much do they care?

After describing your audience, determine how you will adapt your writing to meet readers’ needs.

Using the example above, if the client is not an accountant, you should define technical terms and refrain from using jargon. Ensure the tone of your document is professional and respectful. The letter may serve as the legal recommendation of your firm, so your writing should be precise and clear.

ASSESS THE SITUATION.

Next, you should assess the situation. During this step, identify the following: • The specific instructions you were given • The constraints you have (e.g., page limit, deadline) • The question/s you need to answer • The data or information you need to collect

As you collect data or information for your document, start broadly; then, narrow the scope of your research.

1. Determine what types of research you need. • Do you need accounting codes, magazine articles, quotes, scholarly journals?

2. Decide how much information you need and how current it should be. • The amount of information you need may depend on document length and

availability of research on your topic. • You will increase your persuasiveness by providing a significant number of

recent, credible citations to support your claims. 3. As you conduct research, keep a record of all relevant information about each source, so it is easier to cite later.

IDENTIFY YOUR PURPOSE.

Write down what you want to accomplish with this document. What is your goal?

Documents may have one or both of the following purposes: • To inform or educate • To persuade someone to maintain, change, or refrain from a belief, behavior,

or attitude

Example. The purpose of this document is to educate the client on the tax consequences of a joint real estate purchase.

Example. The purpose of this document is to persuade level one staff to increase their interpersonal communication with clients by making more phone calls and sending fewer emails.

Once you know what you need to accomplish, you will have an easier time meeting your readers’ expectations and accomplishing your communication goal.

DETERMINE THE APPROPRIATE MODE.

In the final step before you start writing, select the most appropriate mode for communication. In business writing, popular modes include emails, memos, letters, and reports. The mode you select depends on the expectations of your audience and the organization where you work, the speed at which you need to communicate, and the amount of content you need to convey. Keep in mind, no matter what mode you select, business writing should always be concise.

Use emails for sending quick and extremely concise communication. Never send sensitive or emotionally-charged messages over email because you risk content landing in the wrong person’s inbox and/or the recipient misinterpreting your intentions.

Use memos for internal documentation of policy changes or brief updates on research findings/recommendations to internal or external stakeholders. Memos are one to two pages long.

Use letters for formal contact with external stakeholders. You may write a letter to report recommendations to a client, solicit new business, or update a customer on additional services your firm provides. Like memos, letters are one to two pages long.

Use reports when you need more than two pages of content to analyze a series of issues and/or make recommendations.

CREATE

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DEVELOP A THESIS STATEMENT.

A thesis statement is a clear sentence that expresses your central argument or reason for writing the document. In business writing, your thesis statement should state your conclusion rather than surprise your reader at the end of the document. A good way to start drafting a thesis statement is to refine your purpose statement.

Example. Mr. Levy should not be subject to a deduction limitation on the joint real estate purchase of 2244 Lake Drive because the venture is part of a shared equity financing agreement.

Example. Level one staff at ABC firm should increase their interpersonal communication with clients by making more phone calls and sending fewer emails.

BRAINSTORM.

Once you create a thesis, brainstorm some ideas. During the brainstorming process, the exact organization of your document is not important. Your goal is to generate as many ideas as possible and get them on paper. As you brainstorm, you can freewrite, brainstorm a list, or cluster ideas. Sometimes, talking about the topic out loud to yourself or someone else is effective. Try several strategies until you find one that works best for you.

7 CREATE A “BLUEPRINT” OR OUTLINE OF YOUR DOCUMENT. Once you have a number of ideas on paper, organize them into a coherent argument structure. Think of your document like a house, and create a blueprint to organize your ideas. Taking time for this extra step increases the likelihood of creating a clear document.

You should have a roof (introduction), which identifies the main issue and reason for the document. Because your introduction includes a thesis and preview, it covers every idea in your document just as a roof covers every inch of a house.

Your walls (body paragraphs) support your roof. The body of your document provides evidence and rationale for your thesis. As you develop the body paragraphs, identify major sections that must be included (e.g., background facts, issue, accounting treatment, recommendation). Then, move your paragraphs around until you find an order that seems most logical. For example, your document may be organized by issue/recommendation, cause/ effect, time order, or question/answer.

Tip. As you organize your body paragraphs, discuss background information before your analysis, and put the strongest arguments before the weaker ones.

Your foundation (conclusion) should serve as the support for your walls and roof. Just as a solid foundation should have no gaps, a conclusion should be a complete synthesis of the arguments in your document. Furthermore, just as a foundation can extend past the cover of the roof, a conclusion can reach past the content of your document to provide implications for the future or application of your findings to other issues. In business writing, sometimes the conclusion can be your recommendation or specify next steps.

WRITE A PREVIEW STATEMENT.

A preview statement tells the reader how your document is organized; it is like an agenda of what you will cover. Your preview statement should be organized in the same sequence that you discuss the walls (body paragraphs) in your document.

Example. This document provides background facts, relevant accounting codes, and a recommendation for next steps regarding the recent real estate purchase at 2244 Lake Drive.

Another option is to combine the thesis and preview statements into a single sentence.

Example. ABC Corporation recommends implementing the new XYZ accounting information system to improve efficiency, reduce costs, and maintain more accurate data.

The thesis and preview statements should be included in the introduction, usually in the last sentence or two of the paragraph. If you elect to have separate preview and thesis statements, the order in which you provide each does not matter. Choose an order that makes the most sense for your document and will be clear to the reader.

WRITE AN INTRODUCTION.

Your introduction serves as the “roof ” of your document, raising the issues and recommendation you will discuss and setting the tone of the document. Within your introduction, you will have the following components:

• A statement of the document’s relevance to the audience and/or a brief discussion of the issue at hand Why are you writing this document? Why is this topic important?

• A thesis statement Provide a clear, concise sentence highlighting the recommendation of your document (for persuasive writing) or how your document addresses what is needed (for informative writing).

• A preview statement Provide a clear, concise sentence discussing how your document is organized.

Note. In business writing, typically, you exclude an attention getting statement. That is, you will not start your document with a quote, statistic, definition, or anecdote.

WRITE THE BODY PARAGRAPHS.

You can think of each paragraph in the body of your document as the “walls” for your house, supporting the roof. More specifically, each paragraph is like a unique room in your house. Each room has three primary components: a ceiling (topic sentence), walls (supporting evidence), and a floor (mini-conclusion or transition to the next paragraph).

Your ceiling (topic sentence) should be the first statement in your paragraph, and it should clearly, concisely state the main point.

Next, your walls (supporting evidence) should be included to support the topic sentence of your paragraph. Your supporting evidence may be in the form of quotes, data, codification, or observations. Make sure your evidence clearly belongs in the paragraph in which you place it. We do not want to park a car in our kitchen; it is better suited to the garage.

Finally, rooms need a floor (mini-conclusion or transition to the next paragraph). Similarly, most paragraphs should have a final statement to tie your evidence together and enhance the clarity and strength of your argument. In some cases, especially when you need more than one paragraph to make an argument, your final statement may set the stage for the next paragraph.

Tip. Try to keep each paragraph to about five sentences and each sentence to less than three lines of text. If your sentence is too long, it will confuse the reader. To increase clarity of a long sentence, break it into two, or eliminate unnecessary words. Often, you can remove the word “that” from a sentence without changing the meaning.

ADD TRANSITIONS.

Transitions serve as a bridge between paragraphs to help the document flow smoothly from one topic to the next. They also serve as connectors within each paragraph to demonstrate how ideas are related. The more you can tell your reader how ideas are related, the more seamless your document will appear.

First, you can repeat a key word or phrase from the preceding sentence or paragraph. For example, check out the last two sentences in the above paragraph.

Second, you can review and preview content. For example, at the end of one paragraph, you might write, “Although the new accounting code appears to have several benefits, it also poses cause for concern.” This strategy recaps content at the end of a paragraph, while setting the stage for the next one. At the start of the next paragraph, you might write, “The new accounting code creates two negative consequences for companies.”

Third, you can use key transitional words or phrases to show the direction the document is moving.

To link complimentary ideas: again, in addition, at the same time, in the same way, similarly, likewise, hence, as a result, furthermore, moreover, also, first, second, third

To link conflicting ideas: in reality, in truth, on the contrary, on the other hand, conversely, nonetheless, however, in contrast

To demonstrate cause and effect: therefore, then, as a result, consequently, because

To show time: since, immediately, in the same period, today, sometimes, meanwhile, when, while, after, subsequently, until

To show frequency: always, constantly, usually, often, rarely, never, frequently, infrequently

DEVELOP A CONCLUSION.

Your conclusion is the “foundation” of your house; it holds up everything you stated in your document (walls and roof). Just as a foundation can extend beyond the boundaries of the house, your conclusion can raise implications for the future or application of your findings to other issues.

In your conclusion, you should do the following: • Restate the issue, and remind readers why they should care about your

document. • Synthesize, rather than summarize, the main points. That is, tell the reader how

all the points fit together, and create deeper meaning. • Remind readers of the specific steps you want them to take and when the

action should be completed, if you need someone to take action. • Leave the reader with a final, pertinent remark or implication statement. • Avoid signaling your conclusion with one of these statements: in conclusion, in

summary, to conclude. • Reword previous ideas; never repeat sentences verbatim.

REVISE.

To this point, you have written a first draft with all the necessary components. Ask you refine the document, reread it, and move paragraphs around until the structure is organized and logical.

Identify the document’s thesis. Imagine you are reading someone else’s document. Ask yourself, can I find the primary claim? What evidence supports this claim? If any evidence fails to support the thesis, determine whether the thesis needs revision or the evidence should be removed.

Next, refine transitions, sentence structure, and grammar to make reading easy for your audience. Later pages in this guide provide tips for making these revisions. Especially, review page 28 for tips to improve concision using the paramedic method.

While the revision process is time consuming, especially as you work through several iterations of your document, this step significantly improves the quality of the final product.

DELIVER

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POLISH YOUR DOCUMENT.

By giving extra care to the design, you can enhance the clarity and visual appeal of your document. Several design tips are included below, and all should be incorporated into your document when possible.

Formatting (i.e., document layout) • Meet the readers’ expectations for page length, content, and design. • Make font easy to read (e.g., Arial, Times New Roman, or Calibri) and use

12-point font. • Use standard formatting for letters and memos. • Make charts and tables clear, and only include relevant information.

White space (i.e., text- and image-free space) • Make all margins at least one inch. • Provide a space between paragraphs.

Headers (i.e., a concise word or phrase explaining what the paragraph or section covers) • Bold or underline headers. • Capitalize at least the first letter of the first word in each header. If you

capitalize the first letter of each word in a header, keep articles (e.g., a, an, the), conjunctions (e.g., and, or, but), and prepositions less than five letters long (e.g., in, over, near) lower case—unless it is the first word.

Bulleted or numbered lists • Use parallel construction. • Use bullets when order does not matter and numbers when order matters.

Paper and print quality • Print documents on quality paper with vivid, solid ink.

REFLECT

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REVIEW THE DOCUMENT FROM THE PERSPECTIVE OF YOUR AUDIENCE.

Ultimately, the goal of the document is to transmit your thoughts and ideas to another person. Therefore, you must ensure the reader clearly understands your ideas as you intend. Review your document with a critical eye and an open-mind. Put yourself in your readers’ shoes, and ask yourself the following questions:

• Are all the major components present and presented in a logical order (e.g., intro, thesis/preview, body, conclusion)?

• Are my introduction and conclusion concise? • Do any terms need to be clarified or defined? • Are the arguments clear and strong? • Are there any statements the reader could debate? • Are the transitions in thought clear and smooth? • Does the word “this” always have a specific reference to what “this” means

(e.g., “this accounting treatment” uses… rather than “this” uses...)? • Could someone who is unfamiliar with the topic understand the key points

and arguments? • Are sentences written in as few words as possible without losing important

meaning? • Do sentence structures vary to make the document interesting to read? • Does the document look professional?

CHECK YOUR GRAMMAR AND WORD CHOICE.

The use of good grammar increases the likelihood business professionals will view you as someone who is intelligent, conscientious, and detail-oriented. If you hope to become a manager or partner in an accounting firm, work to become a grammar guru.

ACTIVE VOICE The most common verb voices in English are passive and active. Active voice has a clear subject who is performing the action in a sentence (S does V). Passive voice, on the other hand, occurs when an object being acted on is placed in the subject position in a sentence. Often, passive voice does not identify the actor. When we write in active voice (rather than passive voice), our sentences are more clear and, sometimes, more ethical.

Passive: Mistakes were made. (Who made mistakes?) Active: I made a mistake.

Passive: The company was audited. (Who audited the company?) Active: EY audited the company.

Passive: The memo was written by Clara. (The memo was not doing the writing, so it should not be in the subject position.) Active: Clara wrote the memo.

Passive: Information was not made available to us. (Who did not provide the information?) Active: The CFO did not make information available to us.

Exceptions. Passive voice is acceptable in two cases. First, use passive voice when you do not know who performed the action (e.g., The bank was robbed). Second, use passive voice when you want to be polite. For example, if a client’s employee did not give you requested information on time, when you send correspondence, you could avoid placing blame on that person. In this case, you might write, “Because the information was made available last Friday, we can begin the audit on Monday.”

NUMBERS In general, write out numbers nine or less in words. Use numerical form for numbers 10 and greater. Exception. Keep numbers in a series consistent. Correct: two apples, ten oranges, and three bananas Incorrect: two apples, 10 oranges, and three bananas Write out numbers beginning sentences. Correct: Six percent of employees are MSU alumni. Incorrect: 6% of employees are MSU alumni. Include commas with numbers of four digits or more. Correct: $4,857.23 Incorrect: $4857.23 Here are some correct examples for writing dates and times: December 12, 1965 | in 1990 | in 1971-1972 (or) in 1971-72 the eighties | the twentieth century | the 1980s (or) the ‘80s 8:00 a.m. (or) A.M. (or) eight o’clock in the morning 4:30 p.m. (or) P.M. (or) four o’clock in the afternoon Tip. Rather than writing 12:00 a.m. or p.m., write midnight or noon.

WORD CHOICE Many of us use the wrong word in our writing from time to time. Here is a list of words that are often misused or confused (i.e., one used for the other). Check this list as you edit your work. affect, effect Affect is always a verb; it means to influence. Effect can be a verb, but it is most often a noun. As a verb, effect means “to produce or make happen.” As a noun, effect means “the result.”

Example. Mark’s giggle affected the instructor. Mark’s giggle effected a pinch from his classmate. The effect of the pinch was a sore arm. amount, number Number is used when you can count the persons or things. Amount is used to describe things that can be weighed or measured, not counted.

Example. MSU has a large number of students. Many MSU students display a large amount of school spirit at basketball games. because, since Because refers to the cause or reason why something happened or was done. Since refers to time and what has happened after a point in time.

Example. Because Elliot studied day and night for the CPA exam, he passed easily. Since taking the CPA exam, Elliot has slept for two days. fewer, less Fewer refers to the number of separate units (used with things you can count). Less refers to bulk quantity or volume that can be measured, not counted.

Example. Fewer students are in the classroom. Less food is on my plate. e.g. , i.e. If you want to give examples of something, use e.g. When you use e.g., you do not provide every possible example; you only provide a few. If you provide every possible example, you should use i.e., which you can remember as “that is.” Use i.e. when you want to explain or define a term or concept in another way.

who, that Use “who” when referring to a person and “that” when referring to a thing. Correct: An accountant is someone who must have high ethical standards. Correct: The SEC is an oversight body that regulates trading of stocks and bonds.

good Often, you can find more descriptive words to replace “good” in a sentence. For example, rather than stating, “The recommendation will have a ‘good’ impact on your bottom line,” you could replace “good” with profitable. Note: Always review your word choice carefully, and assess whether you have selected the most accurate and descriptive word possible. ARTICLES (THE AND A/AN) Articles function like adjectives because they modify nouns. “The” is used to refer to specific nouns (e.g., You will qualify for the standard deduction). “A/an” is used to modify non-specific or non-particular nouns (e.g., I want you to find me a deduction). An is used when the noun begins with a vowel (e.g., an exemption) or a noun starts with a silent h (e.g., an hour). SUBJECT-VERB AGREEMENT “everyone” and “everybody” Everyone and everybody are singular. Everyone means every, one, individual person. Everybody means every, one, individual body. Be careful to pair these words with singular verb forms and pronouns. Correct: Everybody is excited about the extra vacation days. Correct: Everybody must turn in his or her timesheet to be paid. Because writing “his or her” can make your sentences lengthy, consider revising sentences to create plural subjects. For example, you can rewrite the first sentence to “Employees must turn in their timesheets to be paid.” “neither/nor” and “either/or” sentence constructions Neither/nor and either/or constructions imply singular verb forms. Although, in some cases, you may need to use a plural verb form. The rule is to form your verb according to the noun closest to the “nor/or” in your sentence. Correct: Because of a big exam tomorrow, neither Jack nor Jill is going out tonight. Correct: On holiday breaks, neither students nor professors are on campus. PARALLEL CONSTRUCTION Parallel construction means consistency when using verbs or nouns in lists or sentences. Correct: I had a busy day; I went to four classes, studied for the CPA exam, worked out at the gym, ate dinner, and hung out with my friends.

*The sentence employs parallel construction because all the clauses begin with verbs, and all the verbs are in the same tense throughout the sentence (i.e., went, studied, worked, ate, and hung).

PUNCTUATION Commas, periods, and semicolons Before knowing the rules for using these punctuation marks, you need to understand a few basics of sentence construction. All complete sentences have at least three parts: subject + verb + object. A complete sentence is also called an independent clause. When you have an independent clause, you end it with a period (or question mark, exclamation point, etc.). If you join two independent clauses with a coordinating conjunction (i.e., for, and, nor, but, or, yet, so), put a comma before the coordinating conjunction. Example. MSU has an amazing accounting program, and the professors are incredibly helpful. Also, when you link three or more items or ideas, use a comma before the conjunction. Example. To prepare for my EYCC appointment, I should remember to bring a copy of my paper, a note pad, and a pencil. If you join two independent clauses with a conjunctive adverb (e.g., however, moreover, therefore, consequently, otherwise, nevertheless, thus), put a semicolon before the conjunctive adverb and a comma after it. Example. MSU prepares accounting students for success on the CPA exam; therefore, I intend to enroll in the MSA program this summer. If you join two independent clauses without any additional connectors, use a semicolon. Example. I just took the last section of the CPA exam; I am going to sleep for at least 24 hours. If your sentence contains a series that includes commas, use semicolons to enhance clarity. Example. Last summer, I visited Raleigh, North Carolina; Denver, Colorado; and Austin, Texas. You should only use a semicolon when the two independent clauses are closely related. Semicolons are like adding a little extra sparkle to your writing. Use them sparingly.

ELIMINATE UNNECESSARY WORDS.

Business writing is concise and uses only necessary words to make a point. Richard Lanham developed a process for increasing concision in writing; his process is called the paramedic method. The paramedic method trims excess content from sentences using the following steps:

1. Underline prepositional phrases (e.g., near, of, for, from, at). 2. Circle forms of “to be” verbs (e.g., am, is, are, was, were, be, being). 3. Box the action, which may be written as a noun. 4. Rewrite the action into an active verb. 5. Put the actor in the subject position in the sentence. 6. Eliminate slow wind-ups. 7. Eliminate redundancies or unnecessary prepositional phrases.

Wordy Example: An analysis of the SEC’s role in the regulation of trading of stocks and bonds was provided in this memorandum. (word count = 20)

Concise Revision: This memorandum analyzed the SEC’s role in regulating securities trading. (word count = 10)

Wordy Example: From the beginning of the school year, interviewing for an accounting position was met with enthusiasm. (word count = 16)

Concise Revision: I interviewed for an accounting position enthusiastically. (word count = 7)

For more information on the paramedic method, read Lanham, R. A. (2006). Revising prose (5th ed.). Longman Publishing Group.

SEEK ADDITIONAL FEEDBACK.

Sometimes a fresh set of eyes can be incredibly valuable for improving a document. Ask a couple different people to review the document. First, have someone familiar with the topic review the document and check for clear, concise communication. Then, have someone who is a good writer and unfamiliar with the topic give you feedback. If you have explained ideas in a way that anyone can understand, you have written a clear document.

Keep an open-mind, and take comments as constructive criticism to ensure your reader will receive the message you intend. Revise your document incorporating the comments that seem relevant.

Remember. As Nathaniel Hawthorne said, “Easy reading is hard writing.” Keep in mind that writing is a time consuming process. No one is a perfect writer ; however, with practice and hard work, we can become more effective at communicating our thoughts through writing.

Tips for being a reviewer. When you review someone’s document, balance positive and constructive feedback. Every paper has strengths. Telling writers what they did well helps them continue to incorporate the positive aspects of their writing.

ADDITIONAL INFORMATION

HOW TO WRITE A PROFESSIONAL EMAIL

Emails are a popular and efficient way to share messages in businesses. However, many people misuse or abuse email. Please consider the following tips to ensure the professionalism and clarity of your email communication. Consider whether email is the best channel for delivering your message. • Use email when the information you intend to share is not sensitive, the

recipient expects and prefers you to use email, and you do not need to convey emotion or give/receive immediate feedback.

• When the circumstance does not meet the conditions above, a different communication channel may be more effective than an email.

Use a subject line that is clear and specific. • Use the main point of your email as a guide for writing the subject line. • Keep the subject line to 25-35 characters in length. • Good example. Ford Meeting Changed to March 15 at 1 p.m. • Poor example. Ford Meeting (What about the meeting?) Set the tone with a professional greeting. • Use appropriate greetings (e.g., Dear, Good Morning, Hello). • Never use greetings such as Hey, What’s Up, or Hi There. • As power distance increases so too should the formality in your greeting. Include an introduction that is direct, formal, and positive. • Good example. All managers will meet on Monday, June 30 at 10 a.m. to

finalize the annual operating budgets for all departments. • Poor example. This is to inform you that we must complete the annual

operating budgets smoothly. Over the past two months, many managers have shared concern about their departmental budget needs.

Include a body that discusses the email topic and includes all relevant examples. • Use graphic highlighting (e.g., bold or underline), headers, bullets, or numbered

lists to enhance reading comprehension and retention. • Keep the body relatively brief (i.e., no more than a paragraph or two) to

prevent the reader from skimming your message. Include a conclusion that provides an action step, dates or deadlines, a message summary, or a closing thought. • End your email with a closing statement (e.g., Thank you, Sincerely, Best regards,

or With appreciation). • Provide a professional signature with your contact information.

Consider the following etiquette for professional email communication. Do • Use 11 to 12 point font in standard formats such as Times New Roman, Arial,

or Calibri. • Include white space between paragraphs. • Add punctuation to separate sentences. • Proofread for clarity, concision, coherence, and tone. • Check for grammar, spelling, and mechanical issues. • Use an auto reply if you are out of town or away from the office for 24 hours

or more. • Change the subject line occasionally to reflect changes in the topic. • Attach necessary documents. • Use FYI tags to help other people manage their email. • Include enough of the prior message(s) to remind the receiver why you are

writing. • Let people know when you receive their emails. • Make a goal to respond to all emails by the end of the day, if not sooner-

even if your only message is to let someone know you are collecting information and will have a more thorough response by a certain date.

Do not • Send sensitive or confidential information over email. • Use colored fonts. • Use emoticons (happy or sad faces). • Use humor. • Reply to all unless it is necessary to update everyone on the content of your

message. • Use texting abbreviations. • Use all UPPERCASE or lowercase letters. • Send text messages to your co-workers, clients, or boss without prior

permission to do so.

SAMPLE INFORMATIVE MEMO

MEMORANDUM To: Options R Us, Board of Directors From: Sparty Spartan, Advisory and Assurance Staff SS Date: January 15, 2011 Subject: Accounting for ESOs in Cash vs. Equity Per your request, I reviewed the important accounting issues related to the employee stock options (ESOs) that Options R US recently granted. Below, please find explanations of how to account for ESOs settled in equity versus cash and the impact of each decision on the 2011 financial statements.

Background On January 1, 2011, Options R US awarded 1,000,000 equity-settled ESOs. The fair value of each ESO was $8 on the grant date and $12 on December 31, 2011. Employees will vest in a different number of options depending on two performance conditions: the cumulative net income that Options R Us earns over the four fiscal years following the grant date and continued employment with the company. Options R US estimates that 3% of employees will end their employment with the company each year. Accounting for ESOs Settled in Equity If these ESOs are settled in equity only, Options R US should use a 50% vesting rate to compute compensation expense and the increase to contributed capital. The accounting standards require that compensation cost related to performance conditions shall accrue based on the most probable outcome. Management believes the most probable outcome is that Options R Us will earn cumulative net income greater than $20 million and not more than $23 million. This performance condition is associated with a 50% vesting rate, which should be used to calculate compensation expense. Thus, the impact of this award will be a compensation expense and an increase to contributed capital in the amount of $885,293. Accounting for ESOs Settled in Cash However, if the ESOs can be settled in cash, the impact of the award will be to recognize a liability instead of an increase to contributed capital. Also, Options R Us must remeasure the fair value of the liability at the end of each reporting period, so for 2011 the total compensation cost will be $1,327,939. Summary Therefore, the impact of ESOs settled in equity versus cash will differ. ESOs settled in equity will result in a compensation expense and an increase to contributed capital of $885,293, while ESOs that can be settled in cash will result in compensation expense and a liability of $1,327,939.

Combined thesis and preview statements Note: The purpose of this memo is to inform, not persuade. Therefore, the thesis does not provide an argument. When you write a persuasive memo, your thesis should make an argument and state your conclusion.

Relevance statement

Note: If you write a persuasive memo that provides a recommendation, omit a summary. This strategy will reduce unnecessary repetition in your writing.

Initial your memo in pen to indicate your approval of the contents.

Closing summary statement

SAMPLE PERSUASIVE MEMO

MEMORANDUM TO: Tony Smith, Senior Tax Advisor FROM: Sparty Spartan, Tax Specialist SS DATE: January 20, 2015 SUBJECT: Recommendations for Ryan Levy’s Potential Real Estate Purchase Our client, Ryan Levy, has expressed concern about tax implications of a venture he is considering, a joint purchase of real estate in Lansing, Michigan, with Sarah Thomas. The issue is whether Mr. Levy will be subject to a deduction limitation because Ms. Thomas will use the property as a residence. Based on my analysis, Mr. Levy should not be subject to a deduction limitation because the venture is part of a shared equity financing agreement. This memo includes relevant background information, a description of the tax issue, and a recommendation for proper accounting of the real estate purchase. Background On February 1, 2013, Ms. Thomas and Mr. Levy plan to purchase rental real estate, where Ms. Thomas will live. Mr. Levy will provide the down payment and one-half of the monthly mortgage payment. Ms. Thomas will pay the following monthly expenses: • The remaining mortgage • Rental payments to Mr. Levy • The energy bill They will split the property taxes evenly. Mr. Levy will receive one-half of the appreciation value of the home, if sold, and has the option to request receipt of his property interest after five years. Tax Issue The tax issue is whether Mr. Levy is subject to the deduction limitation in 280A(c)(5) because the taxpayer used the rental property as a residence. Tax Implications The agreement between Mr. Levy and Ms. Thomas qualifies as a shared equity financing agreement under 280A(d)(3)(c). As such, 280A(c)(5) will not apply and cannot limit the deductions attributable to the rental of Mr. Levy’s share of the property. The IRS also reached this conclusion in Private Letter Ruling 8410038. Recommendation To override the limitation of 280A(c)(5), Mr. Levy and Ms. Thomas must have qualified ownership interest in the property. Also, the rent Ms. Thomas pays to Mr. Levy must be a fair amount at the time of the agreement. Because Mr. Levy is being allowed the deductions, payment of expenses should be his responsibility. The agreement between Mr. Levy and Ms. Thomas will not have unfavorable tax implications for Mr. Levy should he follow these suggestions. Please review the agreement, and approve the above recommendations. I will inform Mr. Levy of our progress by January 24. Adapted from May, C. B. and May, G. S. (2008). Effective writing: A handbook for accountants (8th ed.). Prentice Hall: Upper Saddle River, New Jersey.

Note: This persuasive memo provides a recommendation; therefore, omit a summary. This strategy will reduce unnecessary repetition in your writing.

Preview statement Thesis statement Note: The purpose of this memo is to persuade. Therefore, the thesis provides an argument and states the conclusion.

Relevance statement

Action steps

Initial your memo in pen to indicate your approval of the contents.

Closing summary statement

Statement of implication

Thesis statement Note: The purpose of this memo is to persuade. Therefore, the thesis provides an argument and states the conclusion.

Relevance statement

SAMPLE LETTER

Spartan Tax Services 1234 State Street East Lansing, MI 48823 December 12, 2015 Dr. Shanda Leer Chief Administrator Mercy Hospital 5678 Capitol Drive Lansing, Michigan 48901 Re: Request for Tax Information on Employee Meal Vouchers Dear Dr. Leer : In our meeting on December 6, you asked us to research whether the value of the meal vouchers that Mercy provides to its medical employees is taxable to the employees. I regret to inform you that if the vouchers are redeemed at MacDougal’s, their value is taxable to the employees. However, if the vouchers are redeemed in the hospital cafeteria, their value is excludible from the employee’s income. Included below, please find a list of important facts in this situation, a description of applicable laws, an analysis of the facts based on these laws, and our recommendation. Facts The facts as we understand them are as follows: • Mercy provides meal vouchers to its medical employees to enable them to eat

while on emergency calls. • The vouchers are redeemable either in the hospital cafeteria or at MacDougal’s. • MacDougal’s is a privately owned institution that rents business space from the

hospital. • Although Mercy’s employees are not required to remain on or near the premises

during their meal hours, they generally do. Applicable Laws Based on these facts, we considered the legal conditions under which the meal vouchers would be excludible from the employee’s income. Under the Internal Revenue Code (IRC), the value of meals is excludible from an employee’s income if two conditions are met. First, the meals are furnished “for the convenience of the employer,” and second, they are provided “on the business premises of the employer.” Although the IRC does not explain what is meant by “for the convenience of the employer,” “business premises of the employer,” and “meals,” other authorities do.

Preview statement

Specifically, the Treasury Regulations define “business premises of the employer” to be the place of employment of the employees. The Regulations state that providing meals during work hours to have an employee available for emergency calls is “for the convenience of the employer.” Moreover, under the IRC, if more than half the employees satisfy the “for the convenience of the employers” test, all the employees will be regarded as satisfying the test. Additionally, the Supreme Court has interpreted “meals” to mean food-in-kind. The Court has held that cash allowances do not qualify as “meals.” Analysis Given these legal definitions, we analyzed your situation. First, the meals furnished by Mercy are “for the convenience of the employer.” They are furnished during the employees’ work hours to have the employees available for emergency calls. Second, although the meals provided by the hospital cafeteria appear to be furnished “on the business premises of the employer,” the meals provided at MacDougal’s do not appear to be. The hospital is the place of employment of the medical employees. MacDougal’s is not. Finally, the detail that remains unclear is whether the meal vouchers are equivalent to food-in-kind. On the one hand, the vouchers are redeemable at more than one institution and thus resemble cash allowances. On the other hand, they are redeemable only in meals and thus resemble food-in-kind. Recommendation To increase clarity, we suggest that you modify your employee benefits plan to allow for the provision of meals-in-kind exclusively in the hospital cafeteria. This modification will dispel any doubt that Mercy is furnishing “meals,” “for the convenience of the employer,” “on the premises of the employer.” After making this modification, the value of the meal vouchers can be excluded from the employee’s income. Please call me at (817) 475-2020 if you have any questions concerning this conclusion. I also suggest that we meet next week to discuss the possibility of revising your employee benefits plan. Sincerely,

Sparty Spartan Sparty Spartan, CPA Senior Manager Adapted from May, C. B. and May, G. S. (2012). Effective writing: A handbook for accountants. Prentice Hall: Upper Saddle River, New Jersey. Adopted with permission from Pope, T. R., Anderson, K. E., and Kramer, J. L. (2010). Prentice Hall’s federal taxation 2010, comprehensive. Prentice Hall: Upper Saddle River, New Jersey.

Statement of implication

Action steps

NOTES

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