Accounting for a Detoured Economist

Well it has been a while since I have written here. To be frank, it has been a while since I have even come to this site. I have fallen into a rut. Now a rut isn’t always a bad thing…in the short run. Life has consisted of the following….

1. Waking up
2. Playing with my lovely 1.5 year old daughter
3. Going to work
4. Working through lunch (if at all possible, pesky social events often get in the way)
5. Driving home at a devils pace.
6. Playing with my lovely daughter.
7. Dinner, chores, bedtime for Maya
8. Spend time with my wife
9. Watch a little boob-tube to wind down from the day
10. Go to bed
11. Repeat

I used to look forward to blog posts, but ever since I moved to North Carolina the activity has lost its luster. Strange…I am enjoying myself as I write this…but the activity is no longer a draw.

Work has been consuming lately. Going to a new firm is more challenging then I expected. As an ‘experienced hire’ I am expected to know what I am doing, and for the most part that is true. However, there are a plethora of landmines that I walk into daily that slow my productivity down compared to my coworkers (I am at a senior auditor level sniffing a manager position, but being held back by my lack of certification — AHHHHHHHHHHH!). Planning for clients with a risk based approach has proven to be difficult for me. I have been assigned to clients I do not know in industries I am not familiar with. How the hell do I know what the industry and client risks of material misstatements are…I am intelligent and can give a good guess, but I guess the idea of guessing at it seems wrong to me. During the June 30 year ends I was thrown into clients in industries I am familiar with but did not plan and walked into the middle of audits that I was expected to close. Let me tell you what a pain in the ass that was.

On top of all of this I am having to learn a new audit software package, new standards that change audits to a more risk based approach (I was used to a substantive overkill audit method) and a lack of knowing what a GP3 is (that is what my coworkers call the fraud assessment workpapers…even though they are now labeled something else in the audit workpapers). I went from comfortably knowing what I was doing and being the go to guy for questions to being a average auditor that barely treads water most days. A humbling experience, to say the least of the situation.

Also I am starting to feel my age. There is a partner at my firm that is just a year or two older than me. Fuck! It is hard to feel competent when I am not even certified and that guy is pulling in a fat paycheck. Now to be fair to myself he went straight from high school to an accounting degree to a job at a firm with no detours. Whereas I went straight from high school to farting off for years to a community college to two other colleges to an economics and statistics degree path to a PhD in economics to a PhD dropout to a what-the-hell-do-I-do-now career path to finding auditing. But still…fuck! If I was disciplined and had focus and drive from an early age where could I be right now?

Talk about a gut check. I am beginning to find my stride at the new job so the pain of the last six months is subsiding. I am also to the point where I will have enough credits in accounting to take the damn certification test (which means I still have to take MORE college accounting courses-FUCK! [Why can’t I take the test without 30 units of accounting coursework…if I can pass the exam without that bureaucratic obstacle why would I be less then qualified to practice as a CPA?]). I may write more in the near future…Maybe not. RSS me and find out.

Ta-Ta.

So, you are a high-quality auditor…which essentially means you are a nitpicking anal-retentive rule loving detail orientated thorough control loving in-human entity. As an auditor you would think that your diligence would be rewarded….and it is. How? By the creation of extra work and unpaid overtime. While your lazy tic-and-tie co-workers are oblivious to what is actually going on and couldn’t detect a finding unless it dug out of its own hole and bit them on the cheek you are finding errors left and right. Errors not found last year, even though the controls have not changed. In five minutes you find major control problems…and are left wondering why no one else has found such simple errors. Why couldn’t prior auditors find these errors? And why in the hell are you the only auditor still working 11 hours after the shift began?

The most obvious answer is that the incentives are not in place to reward the hard work and diligence it takes to find, and properly document, errors in accounting. The first dis-incentive is the actual documentation of errors. It takes double, or more, of the time to document an error then to document no exceptions noted. If the prior auditors saw a discrepancy they are more likely to justify the reason the discrepancy is not a problem because they do not want to go through the intense and detail orientated task of documenting and proving that an error exists. It is just easier to note a ‘potential’ compensating control and not think too much about the issue at hand. The manager and partner do not have enough time to fully understand the issue at hand, and the likelihood of a review note is relatively low. So why create trouble and more work if the finding is not a major material misstatement?

Second, the budget on most jobs is an additional dis-incentive. Although it is possible to ask a client fort more money to cover extra time spent to research findings….the reality is that a client with findings may be a bit bitter and may not be in the mood to here about increase over the contract rate. Additionally, the firm has an enormous bias and culture to come in under, or at, budget and not write-off a plethora of billable hours because they go over budget.

Finally, all of the work and time spent on a finding may go completely unappreciated by your supervisors. Every finding is additional work and time, for the auditor that recognizes them, and has a multiplying effect that is exponential based on the number of managers, supervisors and partners involved in the audit. It is no fun for the supervisor to go to the client with a laundry list of problems…after-all the client is the one paying the firm…not the regulatory agency that requires the audit. The firm is in a difficult position…having to choose between making the regulatory agency happy with an independent audit and keeping the audit client happy enough with the services provided by the auditing firm to re-sign a lucrative contract in a few years.

The bottom line for a staff auditor is that doing your job with the utmost of quality and attention to detail may not always be appreciated or welcome. This isn’t always (or usually, the case) but it happens enough that most people who have performed audits in their career will know exactly what I am talking about.

I have stepped away from taxes and back into the worlkd of audit. On my first job I actually caught someone lying to me and creating documents, that should have been created and signed months ago. If you have ever worked as an auditor then you know the feeling of being lied to but not being able to prove it. Well last week I got that feeling and was able to create an air-tight case using time stamps and other evidence to prove my suspicion, I felt like an audit stud…if such a thing exists. I wish I could write more about the particulars…but as we all know the good war stories can’t be blogged about. DAMN!

In other news I ran across a post in LiveJournal by a guy named Matt T who was attempting to describe the specioes known as auditors. He wrote a pretty good description including gems like

Should the auditor begin to behave aggressively towards you, asking what proportion of your contingent liabilities you consider probable, the best advice is to shout ‘Enron!’ and run very fast in the opposite direction. This will make the auditor in question shrivel up and die.

and…

An audit team typically changes its hunting ground every couple of weeks. Hunting grounds normally take the form of offices, but may also include factories, shops, schools and hyperspace. Any place of work is a potential source of nourishment to the paper-hungry auditor. All audit teams have a leader, who runs ahead of the pack in search of an audit trail. Should he find something suspicious, for example a file that has not been organised in alphabetical order, he will begin baying to attract the attention of the rest of the pack. Once the pack have a sniff of the scent, they are released upon the unsuspecting company, and tear around the offices of the internal accounts department, hunting out similar transgressions. When they find another offending item, they will let out a charecteristic whoop of delight, and fall upon the filing cabinet, tearing the paperwork to shreds with their bare teeth in their eagerness to devour it.

and…

Audit packs have their own dens, known as home offices. The pack visits the office on average once a month, in order to refuel on stationery. Auditors can survive several days and nights without water, sex or sunlight but are liable to fall seriously ill if deprived of paper clips and yellow post-its.

I encourage you to read the whole post here.

Shivani over at One Step at a Time has a list of pet peeves she, as a second year auditor, has with her first year coworkers. The greatest hits are…

1. You’re not supposed to leave after 8 hours during busy season
2. Shut off the email and AIM
3. Ask for more work

I have to admit to being guilty to #2, especially in the beginning of my audit career. I have gotten out of the habit as I noticed what Shivani has noticed…

Some first years I’ve worked with sit on their AIM all day long and it takes them three times as long to finish something.

Yep, that is spot on. I am not of a chatter…but I can fall victim to the ‘wikipedia effect pictured below very easily.

From Desktop

My firm has actually blocked access to gmail and other chat enabled services while on the company network. This is a pain-in-the-ass solution, but I understand why they did it. Furthermore, considering the new email and electronic document rules in the US I can not blame any company for doing the same.

Shivani expands on all three pet peeves in her post here. Also check at Shivani’s earlier post in regarding the top 10 qualities of a good employee, which is also an excellent read.

Ken T. Trotman of UNSW wrote an academic paper a few years ago called A field-based analysis of audit workpaper review. In his conclusion he wrote…

Our study found some significant differences between manager and senior reviews.

First, managers spend more time on review than seniors.

I can’t speak to this subject more then to say that maybe this is because Managers get the workpapers closer to the audit deadline and have less time to spend on review before the report must be out the door.

Second, seniors’ expectations of the perceived emphasis of the reviewer were more related to documentation while managers’ expectations were more related to “big picture” issues.

Third, we found that managers report spending a greater percentage of their time on assessing opinion formation than seniors. Both of the last two points provide support for Ramsay’s (1994) theoretical framework showing that managers’ knowledge is organized around conceptual errors (e.g., opinion formation issues), while seniors’ knowledge is organized around mechanical errors (e.g., documentation errors).

Makes sense to me…seniors are concerned with not missing the obvious mistakes that can put their career on a long delay. This is the famous ‘Can’t see the forest for the trees syndrome’. A manager is more concerned with impressing the partners with a big-picture finding that shows a breadth of knowledge in the field more then a technical knowledge of workpaper attention to detail.

Fourth, while both managers and seniors reported that they responded to reviewers’ preferences, the effect was greater for seniors. Managers’ better-developed schema for review is less likely to be impacted by the review level above. Fifth, seniors spent more of their review time on training subordinates than did managers. A better understanding of how the review process varies with experience allows training to be more focused toward the needs of different ranks of auditors.

This couldn’t be more true. I find partner review notes multiple times more interesting and educating. This isn’t because I am a partner kiss-ass, it’s because most partners in my firm are not trying to nitpick to get ahead….they just want to get it right. Many partner review notes at my firm identify a potential problem, try and determine what I have done to address the issue, give advice about how I can better word what I have done to clearly address the issue or give an easy way to do additional testing to address the problem immediately, and give more then a day or two to address the problem (usually a week). This isn’t to say that my managers and seniors don’t do these things (I don’t know who reads this blog, but judging from the statistics on my website many people from my local area read this blog)…it is just that they rarely do all of them in any one review note.

If you have a few minutes you check out the full article. It is an easy read for an academic paper and is refreshing to see that the academic community can be so in touch with the day to day issues of auditors.

I have an entire batch of workpapers that have sign-off dates of January 2006. The problem is that I audited the 12/31/2006 financial statements…damn.

From Desktop

Note to self…look at the past three weeks of audit workpapers to see if there is a single workpaper dated correctly. If there is….congratulations, you are not a complete idiot…just a 99% one. Argggghhhhh.

Does anything ever get done on the first day of fieldwork on an audit? It is a certainty that little will get done on most of my assignments. Is it the same at your firm? Today I spent the first half of the day waiting for a Peachtree conversion from 2002 to 2006, waiting on a TB conversion in epace, collecting all of my audit programs, figuring out what accounts the client has, etc. The second half of the day was spent bouncing between Cash, AR, Computer System Internal Controls, and Cash Receipts Internal Controls; I couldn’t concentrate on any one thing for more then a few moments before someone would divert my attention to another area of the audit. I don’t think I signed off on a single workpaper today. Frustrating!

We all know what the problem is…poor planning. I don’t know where to place the blame…maybe it was my fault. Should I have set up my workpapers over the weekend? Maybe. But shouldn’t the TB be complete before the audit team arrives at the client’s site? Shouldn’t the basic source documents be ready when we arrive (bank statements, reconciliations, aged receivable and payable reports, etc). Shouldn’t’ checklists and narratives be sent before the team arrives? Seniors, Managers, Partners, and the client are tasked with these planning items…The efficiency gain the firm would achieve with well planned audits appears to me to be substantial? Am I missing something?

As some of my regular cross-over readers know, I am a PhD drop-out from Cornell University. I was studying economics and had a full fellowship with tuition, healthcare, and a basic living stipend paid by the university while I studied. I had similar offers to study at UCSD, U. Maryland, U Virginia, Ohio State, and a number of other well known universities. I began to blog as an undergraduate studying for my economics and statistics degree. Upon dropping out of my math economics PhD program I sort of fell into the accounting field.

The economics blog universe was small when I began to blog…but it continually grew with more and more blogs each month. I developed a blog style that was highly dependent on interaction with other blogs through commenting on others posts, reading a post written by another blogger that would spark a new idea in me, and the free exchange of opinion on whatever the controversial subject of the day happened to be. I loved it, and the process never seemed to be burdensome. Blogging about accounting/auditing is nothing like my experience blogging about economics. Why?

Both subjects are considered dry by most of the population. Notwithstanding the occasional pop-culture breakthrough of people like Steven Levitt , Milton Friedman, or Robert Kiyosaki for the most part explaining your job to a person at a cocktail party will more likely then not be met with glazed over eyes and the summoning of additional cocktails to get through the boredom of the field of economics or accounting.

For the last few months I have thought that my newness to the field made writing about accounting difficult. All SAS statements are new to me so SAS 99 is as new to me as the newest statement coming down the pipeline. Backdating seems criminal to me…but my newness in the field leaves me second-guessing my knee-jerk reaction on the subject…”maybe there is something I am missing”, I think to myself. This stops me from posting for fear of looking like an uneducated loaf on the subject.

Another contributing factor to my lack of productivity is the audit/tax busy season (I have learned that the busy season is much longer then the non-busy season in an audit company). My audit busy season is from August to December. I also do tax work so I have to withstand another busy season from February to April. In economics when I was extremely busy my blog production went up. I was exploring new ideas, learning tons, and wanted to blog about it all. I have a similar desire to blog during the busy season now. The problem is how to blog about interesting subject that come up over the course of the day without disclosing information about the entity I am auditing. Generalization about the field work…but they are less interesting then the nuts and bolts of actual occurrences. Furthermore, although I have never disclosed the company I work for or the clients I am working on, it would not be hard to figure these things out…and if a client ever gets litigious I don’t want to be a target in any way. So during the busy season, the things I most want to blog about become off limits and since I am soo busy I have little time to pursue other areas of interest that would be pertinent to this blog.

The lack of other active bloggers interested in the subjects I am interested in is also hindering my blog productivity. There are many blogs that deal with new tax laws, or big-four happenings, or discuss industry problems from a firm’s perspective. But these things don’t interest me as much as the anecdotes about the field and how they relate to the experience of being an accountant/auditor. The lack of staff and senior level day-to-day blogging leaves the accounting/audit blogosphere without much of a dialogue. The back and forth dialogue of an active blog community is sorely missing in the accounting/audit blog community. My eyes are rarely opened to a new idea, or a fresh prospective on old topics. Where is the innovation in the field? Who is criticizing the status-quo? Where is the debate? People like Dennis Howlett, Krupo, and the Anonymous Accountant (when s/he was blogging) do a fantastic job, but I need far more people to read on my RSS feed. A community of four or five is not enough to obtain a critical mass that perpetuates itself for more then a few months.

There is an old saying that if you are bored you are probably boring, inferring that dynamic people find ways to occupy their life and avoid boredom. Boring people don’t do this and by default become bored. I am open to the prospect that I may be boring (for gods sake I enjoy economics, math/statistics, and accounting…the possibility is real). But it is possible for dynamic people to be bored in a boring environment. The accounting/audit blogosphere community is boring at the moment. I hope I am contributing to changing this….I pray others will step-up to the plate and grow the community and rock the boat a bit.

Update: I want to read posts like this in the accounting field (Thanks for the link Krupo)…

…The real cause of September 11th was lazy associates, public interest attorneys, and law students from second-tier schools. I haven’t yet figured out the details of my argument, but give me the weekend and I’ll come up with something. Obviously they’re the cause of every other problem in society, so why should 9/11 be any different? They’re the cause of global warming (hardworking associates don’t have any time to pollute), rampant disease (hardworking associates don’t interact with anyone, so they can’t spread illnesses), poverty (hardworking associates have all the money they need, building up lots of interest since they have no time to spend it), divorce (hardworking associates don’t have time to date and get married in the first place), overpopulation (hardworking associates die young), the social security crisis (hardworking associates die young), the Medicare shortfall (hardworking associates have private insurance, and die young), food shortages (hardworking associates don’t have time to eat, and die young), and more. So why shouldn’t they be the cause of terrorism as well. I’ll figure out the link. It’ll just take a few days.

Update II: Welcome Neil McIntyre On Accounting readers, I hope you enjoy and stick around a bit. Feel free to add me to your RSS feed….

Thanks for the link.

The Anonymous Accountant (TAA) recently wrote a post declaring his hatred of his new big four employment position.

Lately, I have been somewhat too disillusioned by the accounting profession to bring myself to right about it. Two months in, and I really HATE public accounting. I started off with a positive, “gotta pay your dues” attitude. Everyone does. But it wears thin not long after your training.

It seems that the long hours and brutal working environment are beginning to take there toll.

After all, if what I have to look forward to is 60-70 hr weeks planning and supervising audits for what DEFINITELY is the LOWEST salary for someone putting in those kind of hrs, then hope feeds quite quickly. One senior told me everyone starts off thinking that they will do their 5-6 yrs, get to the Manager level and then leave. This too fades, and you begin to understand why so many leave after getting their designation.

It doesn’t have to be this way. Although I have openly questioned the work hours of public auditors…I think TAA isn’t taking into account the non-immediate compensation that is being earned by all that work. A person taking a job at a big four firm generally knows that the hours suck and the pay is sub-par. People accept this because they know once they have put in a few years and get their designation/CPA they have soo many doors open for them that it makes the ordeal a painful right of passage to a luxurious and rewarding career in corporate accounting, finance, or upper management. I don’t feel bad for those who accept that path. You made the choice…the information was available to let you know what a pain in the ass it is…and you chose to take that path anyway. If you are a rational person, then you weighed the costs and benefits and decided a job at a big four firm was the optimal path at the time of the choice.

The problem TAA is experiencing is what I like to call the ‘time discount factor of pleasure and pain’. Immediate pain is always worse then pain sometime in the future. The farther in the future the pain is expected the less a person’s decision are effected by it. The same theory works for pleasure. TAA is feeling lots of pain at the moment and all of the pleasure that TAA will be rewarded with is so far in the future that, although the volume of pleasure is likely to be drastically more rewarding then the pain it is being paid with, TAA can not see why all of the long hours and monotony are worth it. They may not be…but TAA should have explored that possibility before taking a job that requires soo much from it’s employees.

For me a big-four job, especially on the terms that TAA is complaining about, is not worth it…and I would never take a job with one of the big firms. I work for a regional firm and love it. The hours suck some months…but most months are reasonable. We don’t audit fortune 100 companies…but then again, when I audit a company I know all the pieces of that companies business. I don’t spend 2 months auditing assets without any idea how any of it ties in with cash, debt, risk management, etc. I like my job as an auditor…and remember, this is coming from an economics PhD that dropped out and took a job as an auditor as a filler until I figured out what I want to do with my career. I very likely will remain an auditor for the remainder of my working life. If TAA doesn’t like his job, that doesn’t mean that he dislikes auditing….just like a bad girlfriend shouldn’t dissuade you from dating another girl.

Chin up ole’ chap.

Update: Novembers CFO magazine has an article about financial professionals seeking the perfect fit.

Cut to the West Coast, where Ashley Spencer has a different attitude toward her job search. On a whim, the newly minted CPA flew from Portland, Oregon, to New Zealand and spent six weeks touring after leaving PricewaterhouseCoopers following her fourth audit season. Still not ready to work, the 25-year-old spent the next two months attending weddings and visiting friends, expecting that employers would probably move quickly once they saw her résumé.

Four audit seasons and Ashley is dictating her job terms. Pretty sweet. Most people don’t have such luxuries in job choices.