Accounting for a Detoured Economist

I moved my web hosting last week and have spent the last few days figuring out how to get my sql databases to convert over.  I think most of the bugs are gone now.  Sorry for the sporadic availability the last few days.  I had the full database switched over last night…but somehow locked myself out of all admin rights.  I had a heck of a time figuring out how to get around that error without losing all of my data (on this blog and a few others I write).  Between that, a six week old baby, multiple audits, school, and the need for sleep and eating…I am damn proud of the turn-around time to get this blog back up and running.  Once again, thanks for the patience.  Regular blogging will continue shortly.

It took me a bit of time to get comments on my last blog. Happily Dennis Howlett at AccMan Pro Blog was kind enough to stop by my infinitesimal attempt at adding to the conversation. Thanks Dennis.

Apparently this isn’t just a problem in the US. Dennis Howlett at AccMan Pro Blog writes about Client Engagement Letters noting…

It’s a sore point. The letter basically seems to disclaim responsibility for anything and tries to limit liability. Reads like a resignation letter to me.

This is typical of firms I describe as operating out of entitlement culture thinking. They’re fat, dumb and happy. I know the UK is becoming more litigious, that firms are being forced to handle more bureaucratic nonsense. I also know that firms want to see clients being more accountable. But there are ways of going about this. Sending engagement letters that give the impression of taking no responsibility is plain stupid.

Dennis has an example of an alternative way the engagement letters can be written on his post. Unfortunately my firm uses a boiler-plate letter developed by a national accounting organization that would be impossible to be so short and succinct.

I enjoy auditing as an occupation. I get to go into a number of private, public, governmental, and non-profit organizations and be nosey. I see what people get paid, how much money is spent on real estate, see efficient uses of money, and see all of the inefficiencies inherit in large organizations. Dare I call it fun? Yes.

My company sends teams of people to audit all but the smallest entities. Team-members are assigned portions of the financial statement in the form of audit programs and workpapers that determine the internal controls of the company and support the trial balance of the financial statements. When the job is complete the workpapers are reviewed by the project manager, lead partner, and 2nd reviewing partner. The workpapers may also be reviewed by a peer review group, an outside organization such as the California Society of CPA’s or other regulatory agencies that, in effect, audit our audit. With all of these people looking at our work it is important that all of the workpapers be documented well and easily understandable to a person with limited knowledge of accounting and the business being audited. After every reviewer looks at the workpapers the auditor must address and correct the reviewers concerns. Many of the notes are constructive, correcting mathematical errors and poor referencing. While other review notes are ridiculous (such as reorganizing all of the workpapers in a section on the whim of a reviewer)usually the reviewer wants the workpapers in a different order …this can take hours to do.

This fact is the Achilles Heel of the occupation . Things that appear obvious when auditing a bank reconciliation must be expressly stated in a plain step-by-step (read: tedious) manner. I usually assume that I am explaining accounting ideas to Jessica Simpson when I am writing these notes and attributes. This process exponentially increases the amount of time an audit takes. No one likes it, but we all understand that this process is an integral part of the audit process that helps guarantee fair and transparent audits that stand up to the scrutiny of truth. The problem I have with the process is that everyone in the review chain has their own pet-peeves that can create havoc. One person can be overly concerned with labeling the top of every page in a 52 page document, while another person wants to see referencing from a sheet (for example a bank balance going to a bank reconciliation) to go on the top left of a number, while referencing to a sheet (for example a bank reconciliation coming from a bank balance) goes on the bottom right. The amount of possible nit-picking opportunities are endless.

I try to document my workpapers anticipating the reviewers (I know in advance who will review the work) and pay particular attention to the pet-peeves I know that reviewer is concerned about. A few weeks ago the company tasked new people with reviewing workpapers. AHHHHHHHHHHHHHH!!!! What a hellish day it was. The new reviewers have new pet-peeves & there is just no way an auditor can cover every possible question every reviewer could have. Until I can learn what the new reviewers consider important it will be a rough couple of weeks. It would be nice if everyone followed the same review standards…but since we are all humans, this is obviously an impossibility. C’est la vie.

Justin McHenry at Personal Finance Weblog has started a series of 29 posts called How to Think like Warren Buffett. Justin analyzes all of Warren Buffett’s annual Letters to Shareholders of Berkshire Hathaway to find nuggets of wisdom from the Oracle of Omaha in an attempt to gain knowledge from the experience of a truly successful man leading a well-lived life. I have listed the first three links to the series below…

Part 1 - (1977 Letter)
Part 2 - (1978 Letter)
Part 3 - (1979 Letter)
Part 4 - (1980 Letter)
Part 5 - (1981 Letter)
Part 6 - (1982 Letter)
Part 7 - (1983 Letter)
Part 8 - (1984 Letter)

Good idea Justin!

I indirectly worked for Warren Buffett while going to college in San Diego. As an employee for Geico Insurance (I was a licensed insurance agent in 20+ States) I found he treated his employees fairly and have held a genuine affinity for the man ever since. On a recent episode of The Charlie Rose Show (Three Part Series of videos can be found for free on Google Video: The Man, The Business, The Gift) I was amazed to see just how many people admire him from such diverse walks of life. Warren Buffett is proof that you can be an honest gentleman in your dealings with others while still being a ruthless businessman with a singular focus on shareholder equity.

Advice: Do not mix a three week old baby at home with three full days of audit training on such juicy subject as GASB 45 and School District Revenue Limits without multiple pots of double-caffinated coffee within arms reach. This advice comes from painful knowledge acquired over the past few days. Trust me, this is GOOD advice!

- At least the sleep stealer is cute as a button!

Did you know that the IRS has an ‘Office of Taxpayer Burden Reduction‘ (TBR)? Needless to say, the office has a huuuuuuugggggeeeee task to undertake its mission.

Established in early 2002, TBR provides direction and leadership for burden reduction efforts, focusing on in six major areas:

1- Simplifying forms, publications and notices;
2- Streamlining internal policies, processes and procedures;
3- Promoting less burdensome rulings, regulations and law;
4- Assisting in the development of a burden reduction measurement methodology;
5- Partnering with internal and external stakeholders to more effectively and efficiently identify and address burden reduction initiatives;
6- Chairing the Taxpayer Burden Reduction Council, which develops and coordinates all burden reduction efforts throughout the Service.

My suggestion is to have tax preparation software, online at the IRS website, free to all taxpayers. After a short security screening to make sure the taxpayer is who they say they are, all tax information that is reported to the IRS (ex. w-2 info transmitted electronically by employers, interest info transmitted by banks and investment companies, and other third party submitted data) would instantly pop up. Every library and government entity would have a tax terminal for those unable to file at home. CPA’s could still give advice and be able to file complicated returns…but the majority of taxpayers would be served well by such a system. The savings from mailing and processing paper returns would more then pay for the initial costs.

How is this harder then mailing every household in the country tax forms, w-2, 1099’s, and all the other paper work needed to file tax returns now? Focus 1 (what is simpler then going online and getting all you need at your home with an ice cold brew by your side to numb the pain of the process you are undertaking) and 2 (streamlining would be achieved by eliminating the process bureaucracy needed to proceed millions of paper returns and supporting documents) 6 are both addressed with such a system.