Accounting for a Detoured Economist

In a few months I will want to strangle myself for saying this…but I want to get out of the office and do some field work. In the past two weeks I have done almost 50 hours of CPE. Yuck! With a lack of billable time from clients, in anticipation of June 30 clients getting info to us soon, I have been banished to the world of CPE time filling.

Since I am the new guy I have had the joy of countless hours of Independence, Revised Audit Standards (especially in GASB land), and all the other crap the firm want me to learn so they can cover their ass if anything ever goes wrong (you know the we had him take 10 hours of CPE on this audit standard so he knew what he was doing was wrong). Needless to say a cash reconciliation is looking mighty interesting at the moment. Board minutes?…anyone have board minutes for me to read?…please!

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.

My firm sends a tax guide to all of our tax clients and requests that they fill out all the particulars we will need to complete their tax returns. If the man of the house is filling out the guide the handwriting tends to change (I assume to his wife’s handwriting) when we get to things such as children’s birthday, while when the ladies fill the form out the handwriting tends to be that of another person’s when questions of auto mileage and square footage of additions.

The Telephone Excise Tax Refund has taught me something else. The idea of a cost benefit analysis is not well understood by all small business owners. If it takes me two hours to get you a $150 tax refund…you have just lost money. People can sometimes get too emotional about taxes.

I am in the middle of an audit in which I accept an excel spreadsheet of time allocations to a choice of two different activities for the employees of the entity being audited. One activity is chargeable to a third party client base…one is not chargeable to that base. How do I know if the spreadsheet is accurate…I am extremely unconvinced that the sheet is accurate, but there is no way to prove the inaccuracy. If an employees says they spent 10% on an activity, when I suspect the number is larger, there is no way I can go back and test my doubts. The client is not motivated to keep more detailed records…they would be at a risk of losing revenue. And the audit requirements are simply that the client self-report these numbers.

The funny thing is that the spreadsheets provided by the client look very similar to the billable hour calculations I do as an auditor. How does a client know that I actually spent 10 hours on investments? They just have to take my word for it…yuck! What a crappy, judgemental, and shaky system to determine revenues and cost on.

The billable hour is an often blogged about topic in the blogosphere. Read more here, here, here, here, and here.

I work for a unique accounting/audit firm we In the last two months I have been on audits for School District, Occupational Training Center, a Bank, a Ocean Ship Transport Company, A Nuclear Non Proliferation Charity, and a number of small businesses. I have done compilations, audit reports, tax returns. The variety of my jobs has kept me interested in each client and stopped me from getting into the rut that many auditor’s fall into during their busy season. By the time I acquire my CPA I should have a good understanding of what type of accounting most interests me. What a great opportunity.

This variety does have its drawbacks. Remembering when revenue is recognized in a governmental entity (partial accrual), non-profit (where revenue is recognized when promised…not when received, regardless of the period it is pledged to be used), and private businesses operating their business on full-accrual and a cash basis can be very daunting. It is easy to confuse the rules and references for all of these entities. FASB, GASB, PCOAB, etc. When you don’t specialize it becomes exponentially harder to locate specific rules and dictums. And don’t even get me started on the mass amount of tax rules I will have to cram into my head in the next few months.

I guess this goes to prove that there is no perfect situation…every wonderful job has its dark-side. Luckily I enjoy the challenge of the dark-side of my job.