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• Delta
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A quick word of thanks to this week’s advertisers on Going Concern:
• Delta
If you’re interested in advertising on Going Concern, email us at advertising@breakingmedia.com.
Thanks!
Business technology is a continually changing landscape, but one underlying theme seems to remain constant – the general presumption on the part of sellers AND buyers (especially buyers!) is that their new technology will magically cure a business of all its ills. Since ly buyers of this stuff, take note.
I think this fallacy of thinking transcends the saccharine marketing tactics and arm-waving that normally accompanies these offerings. Sure, a slick sales and marketing troupe can juice the numbers, but there’s more to it.
The deeper message is that we, all of us, are predisposed to WANT to believe in a cure-all.
It’s as true for business & technology as it is for weight-loss, depression, ADHD, and erectile dysfunction. We have been falling for the same old Medicine Show forever, only have our own naive human nature to blame.
During the late 1880s and all the way up to WWII, Medicine Shows peddled their dubious Snake Oil offerings all over the USA. Trumpeting cures for everything from arthritis to cancer, these guys were enthusiastically welcomed into communities despite the dim prospects for validating their claims.
That was a long time ago but how less true is it today? How often are we still willing to download the responsibility for our own well-being onto a pill? How often would we rather buy our way out of organizational inefficiencies with the purchase of a new software application than undertake the grind of fixing a broken or outdated business process?
We have made massive technological advances in both medicine and software and continue to create innovations that move us forward, enhancing user experience as we learn from our mistakes. The outcomes resulting from today’s medicinal fixes may be more tangible today due to the advent of regulation and certain minimum standards (when operating under the auspices of the FDA… not always the case!). The outcomes from new software are improving, but the human element is still critical for driving user adoption.
But there are side-effects. Beyond the cash out of pocket, what price will be paid? A well known anti-depressant lists the following as possible side-effects:
I’ll allow for the fact there are tens of thousands of legal hours that go into these disclosure documents to protect against litigation, but holy smokes man! There’s a couple real dealbreakers there in my view.
So how about new business technology? What sort of side-effects may result?
• The need for extensive training
• Upgrades to hardware
• Incompatibility with other business software
• Inability to capture the business processes properly
• Retaining business processes unsuited to the new environment
• Time to implementation
• Cost of consultants and additional IT guys
• Continued risk of obsolescence
• Internal resistance to change
Examining the possible side-effects and unintended consequences is a critical element of ANY software selection process. Software salesmen won’t be able to distill this inevitable contingency. They didn’t concoct this brew, they just sell it. I’ve known software salesmen that can barely crack open an Excel doc without crashing their computer. Only through a reflective process within your own company can you hypothesize on how the introduction of new technology will affect operations.
Further, it is absolutely critical to examine your existing business processes in the context of a new software. The tendency is to try and maintain existing processes even though they may be as obsolete as the outgoing software. For example, a local company was implementing a new system. The works! ERP, Accounting, and CRM. These systems would aaaallll work together.
Oh, but they weren’t going to purchase the Financial Statement Consolidation Module. They would develop a work-around in Excel instead. It was not surprising to me that they had already failed once on an implementation (to the tune of $2 million bucks).
At the opposite end of the spectrum, I saw a company bring in a powerful reporting technology and allowed a whole bunch of poorly trained users to run hog wild in there significantly reducing the value of the system. The reports being produced could not be trusted. The fix was to lock everything down and bottleneck the reporting process which just led to more work-arounds as users were unwilling to wait it out.
The software being produced today tends to follow a Best Practice approach. If you choose to proceed outside of that framework, it might be an indication that your company is operating outside of Best Practice.
The truth about business software is that it’s work. Productivity gains resulting from new systems are typically back-end loaded. On the front-end, there’s cost, there’s risk, there’s effort, there’s training, there’s the harsh reality that can only come from looking in the mirror and facing the truth about how work ACTUALLY gets done.
Understanding this means burying the Medicine Show paradigm.
Geoff Devereux as been active in Vancouver’s technology start-up community for the past 5 years. He regularly attends and contributes to the growing entrepreneurial ecosystem in the city through the Vancouver Enterprise Forum, guest blogging on Techvibes.com, and as a mentor with ISS of BC. Prior to getting lured into tech start-ups, Geoff worked in various fields including a 5 year stint in a tax accounting firm. He is currently working in a marketing/social media role with Indicee, a Saas Business Intelligence company, bringing B.I. to mere mortals.
Nonprofits doing business with government agencies take note, the days of bloated compensation structures may be over.
Starting July 1st, 1200 nonprofit social service agencies contracted by the state of New Jersey’s Department of Human Services with budgets above $20 million will be subject to a salary cap of $141,000 for its top executives. Executives of NFP agencies with budgets from $10 to $20 million will be limited to salaries and compensation of $126,900; those with budgets of $5 – $10 million will be capped at $119,850 and agencies coming in under $5 million will be limited to $105,750.
The limit would affect at least 30 executives who received compensation packages in excess of what is allowed by the new rules.
The state would save about $5 million by paying less money in CEO salaries, as well as cutting back on travel, education, severance, and vehicle expenses for all nonprofit employees, said Nicole Brossoie, a rep from the state’s Human Services office.
“In light of the state’s fiscal challenges, the department has been exploring cost efficiencies in every part of our budget,” Brossoie said. “The department’s continued goal is to ensure that state dollars are being spent in the most efficient ways.”
While that’s an admirable goal, the proposed changes would also impact organizations that do not feature over-paid executives or frivolous waste of precious funding. One CEO of an NJ nonprofit is worried that her organization may be barred from rewarding staff with cheap gifts (think $5 Starbucks cards) under the new rules – though she is not compensated enough to be impacted by any new restrictions on executive salaries.
State may limit pay for top leaders of New Jersey non-profit social service agencies [Press of Atlantic City]
European Central Bank Executive Board member Gertrude Tumpel-Gugerel insists that fair value is useless in illiquid (read: dysfunctional or non-existent) markets, putting forth the all-important query “what is the use of marking-to-market when there is no market?” in a Paris speech yesterday.
Tumpel-Gugerel is also a tad concerned that the push for convergence around the globe by 2011 could mean compromised accounting standards. “The ECB strongly opposes a full fair value approach,” she said. “In this context, convergence should not come at the expense of high-quality accounting standards.”
The ECB has taken the financial crisis as a lesson in valuation, guidance, and a deft accounting system that leaves plenty of slack available for adjustments should the need arise in, say, a crisis situation. That’s all well and good but guidance only gets you so far and without a firm commitment to when and how to use fair value around the globe, we can pretty much keep debating this point indefinitely.
Her views on FASB’s fair value approach are not at all subtle. In short, it appears as though the ECB supports convergence but only if the idiotic American ways are better aligned with the IASB’s. “With regard to recent assertions made by the IASB and FASB that convergence is on track, I would like to highlight that we are not so optimistic,” she said. “In this regard, putting in place a reconciliation mechanism that simply discloses figures at amortised cost and fair value for each item on the balance sheet would certainly not achieve the aim of convergence.”
Well snap, guess she told us.
Carl Levin To Goldman CFO: When You See ‘Sh–ty Deal’ E-mail, ‘Do You Feel Anything?’ [TPM]
Late in the proceedings of yesterday’s epic Senate subcommittee hearing (involving some of the Almighty’s finest), Goldman CFO David Viniar may have had a bit of a Freudian slip when he responded to potty-mouth Senator Carl Levin’s badgering.
Levin asked Viniar how he reacts to hearing about the email. “Do you feel anything?” Levin asked. Viniar replied: “I think that’s very unfortunate t hich got a smattering of laughter from around the room. Levin asked Viniar how he reacts to hearing about the email. “Do you feel anything?” Levin asked. Viniar replied: “I think that’s very unfortunate to have on e-mail,” which got a smattering of laughter from around the room. “On an e-mail?” Levin shot back angrily. “How about feeling that way?” Viniar started to backtrack: “I think that’s a very unfortunate thing for anyone to have said in any form.” “How about to believe that and sell that?” Levin asked. “I think that’s unfortunate as well,” Viniar responded.
That unfortunateness is in no particular order.
Brussels to scrutinise role of auditors [FT]
The EU has had it with auditors in their current form and is turning their stink eye towards the profession with a whole lot of skepticism, especially since Ernst & Young got in trouble over you-know-what.
Michel Barnier, the new EU internal market commissioner, joined the debate on Tuesday saying that the role of auditors needed closer scrutiny now that the financial turmoil of the past two years was subsiding.
“I’m convinced that it is the right time to launch a real debate at European level on the subject of audit. This conviction is reinforced by the questions recently raised in the context of the audit of the accounts of US bank Lehman Brothers,” Mr Barnier said.
The FT reports that the EU is kicking off this increased level of scrutiny by publishing a green paper this fall on the subject that will examine the way “audit firms are owned and governed…the concentration in the audit market and its implications on financial stability, the emergence of small and medium-sized practitioners, the audit of smaller companies and international standards on auditing,” and also the supervision of global audit firms.
PwC pays £427,000 damages over valuation work [Accountancy Age]
The original suit was for £35 million; that would a W for P. Dubs.
Miami accountant’s workers accused of aiding fraud [Miami Herald]
Two employees of “Miami’s go-to forensic accountant if you want to get ripped off” Lewis Freeman have been charged with conspiring with him in the embezzlement scheme that he pleaded guilty to last month.
SEC Chief Accountant Says Convergence Need Not Be Completed by June 2011 [Journal of Accountancy]
No rush on that, sayeth James Kroeker, on convergence by June 2011:
SEC Chief Accountant James Kroeker told the JofA Tuesday that he would support the boards’ cutting the number of projects due in June 2011, provided there was good rationale for a delay.
“June 30, 2011, is an arbitrary deadline and it’s not one that’s been put in place by the SEC or by our road map,” said Kroeker.
“How about the fact that you sold hundreds of millions of that deal after your people knew it was a shitty deal? Does that bother you at all?”
– Senator Carl Levin (D-MI) to Goldman Sachs’ Daniel Sparks, regarding SEC allegations that Goldman Sachs sold knowingly shitty CDOs to clients.
HERE. WE. GO.
With PricewaterhouseCoopers’ communication about raises behind us, the proverbial dam of anticipation, expectation, and hopefulness gets closer to cresting. From the sound of things though, disappointment and frustration might be joining the flooding the gates as well.
Debate all you want about how much gravy is (or isn’t) on the train, but the partners in your respective firm will tell you that times are still tight. And to be, they’re probably not stretching the truth too far. Here’s what we know:
Revenues were down in 2009 for everyone. Want a re-cap?
Professional service firms are lagging in the market. When Wall Street (and the rest of America) began melting in 2008, accounting firms were still collecting on contractually agreed upon procedures fees. Fees were slashed when contracts were negotiated over the course of the next year, and it was these cuts in services and fees that cost employees their raises, bonuses and sometimes even their jobs. Fees might be back on the uptick; you would know better than me. But the general consensus in staffing camps around the country is that teams are doing more work with less billable hours in the budget. Less billable hours means…less revenue. Less revenue means…double digit bonus season? Doesn’t add up.
Expenses were cut but will the savings make enough of a difference? Recruiting budgets, headcounts, national trainings, corporate donations, and holiday parties – all areas of cost-savings. The financial faucets to many of these areas were adjusted; how soon they’re opened up again is hard to gauge. “Slowly” is the first word that comes to mind.
Raises will be purpose-driven – The vast majority of – if not all – well performing employees will receive raises this year. The pot will be spread out, but don’t be surprised when more love is thrown at strategic groups. Sorry, healthcare auditor, you’re simply not generating as much revenue as your firm’s M&A tax group. Fatter raises will be given to those that the leadership thinks are vital to generating continued revenues and/or will be expensive to replace should they move into the private sector.
The one upside to raises, small as they may be, is that they will drive up your base salary. If you do decide to test the job market, the last two years of effort in public accounting will be mostly represented in your new target number which will lead to a higher base elsewhere.
Stay tuned as we learn more about the state of raises across public accounting. As always, share your thoughts in the comments.
From a source at 300 Mad House:
“I just took the firm wide pulse survey and I laid into them. I told them to stop falsely advertising work life balance.”
Not being intimately familiar the work/life whathaveyous that comes by way of Bobby Mo emails but acutely aware of the motivation techniques employed, we can understand the frustration. Especially judging by some of your reactions to last week’s number. If you feel like sharing your feedback for the year that was at P. Dubs, let it rip.
While the IFRS v. U.S. GAAP rages (or stalls) a far simpler (yet no less important) decision with regard to accounting methods is considered by many small businesses every year.
The cash versus accrual decision is one that all businesses have to make but small businesses have to make and depending on an entrepreneur’s familiarity with the issue, this could be a very simple decision or a “HELP!” moment.
, a quick refresher:
Cash – You get cash; you record the transaction. You pay cash, you record the transaction. Simple.
Accrual – This is what your copy of Kieso, Weygandt, & Warfield harped on in college. Accounts receivable, accounts payable, deferrals, revenue is recorded when earned; expenses are recorded when incurred, the matching principle, you know the drill.
Before we get to the pros, let’s consider a simple example. If you and some friends want to pool your money together and buy a piece of commercial property, it doesn’t make a lot of sense to go the accrual route. Your tenants pay rent, you record revenue. You pay for supplies to make improvements, you record the expense. In general, don’t make something complicated that is inherently easy.
However, depending on the entity structure of your business, you may be disqualified from using the cash method. Generally, C Corporations, partnership with one C Corp partner, and tax shelters are not allowed to use the cash method. So if any of these apply, hello accrual.
Enough with the elementary crap though, amiright? Thought so. To get some additional insight, we called on a couple of partners who have no problem sharing their opinions: Scott Heintzelman of McKonly & Asbury in Camp Hill, PA and our own Joe Kristan of Roth & Company, P.C. in Des Moines, IA.
Since Scott is effectively the visitors, he’ll get first at bat. He told us that he encourages clients to adopt accrual right away for three reasons:
1) Fewer surprises. I just met with a prospect and the number 1 frustration they had about [their] prior accountant was that CPA encouraged [c]ash but things fell wrong that next year and they got killed with a tax liability.
2) It helps to prevents “games” being played with year end cash receipts and cash disbursements.
3) It helps the company to think like a “grown up” business. Too often a small business thinks and acts small (cash basis is thinking little) when I encourage them to think bigger.
So, according to Scott, if you’re thinking about getting into business you should think BIG, thus, accrual is the way to go.
Is it that simple? Well, maybe but Joe has some other considerations including – what else – taxes, “For tax, cash is normally preferred because of the ability to control taxable income at year-end. Farmers are notorious for stocking up on feed at year-end to manage taxable income, but being able to manage income by paying off A/P at year end is useful for anybody.”
Of course, the more complex your business gets, the cash method is less available:
Where it becomes a disadvantage is in mixed structures or large entities. If you have related entities doing business with one another, accrual is nice because you eliminate a lot of Sec. 267 related party problems. You don’t have to worry about paying a related party for A/P by year-end to get the deduction because they have to accrue the income.
For a simple structure without a lot of related entities, you will want to do your tax returns on a cash basis. As the structure gets more complicated, accrual method becomes more attractive, and likely mandatory under Sec. 448 or in medium to large entities with inventories.
But for anyone that has to produce GAAP financial statements Joe concedes, “I have no idea why anybody would be cash basis. You can’t be GAAP on a cash basis, and lenders don’t like that.”
The lesson? Like everything in this world, it depends. Do you have a complex entity structure with several related parties engaging in business? Accrual might be better. If you want to be the next Google (or even a fraction of Google), then you might as well be on accrual. If your bank requires GAAP financials to get a loan, you’ll be on accrual.
But on the other hand, if you’ve got no use for GAAP and a simple business not looking to get crazy, the cash method may be the way to go. If you’re still nervous about checking one box or the other, don’t worry, nothing is written in stone. Just consult your business or tax advisor and they’ll help you figure this out. Anyone got more advice? Feel free to chime in.
Editor’s note: this is the second in our 5-part series this week on the CPA exam. You can find Monday’s Auditing and Attestation breakdown here and stay tuned for the other two parts as well as an ethics wrap-up later in the week. As always, if you have a CPA exam question for us, get in touch.
So, let’s talk Regulation!
Good news: Like Audit, REG tends to have a slightly higher national pass rate than other sections (specifically BEC and FAR) and though business structures can drag, the tax stuff is fairly cut-and-dry. You won’t have to remember tax numbers as most of this information is provided so don’t obsess too much over specific numbers for the year, just stick to the concepts!
Bad news: Business structures can drag and the tax stuff is cut-and-dry. This means Regulation can be one of the most difficult sections to motivate yourself to study unless you are really, really into taxes.
Regulation is a 3 hour exam and is the only section to consist of three testlets of 24 multiple choice questions each (as opposed to other sections which contain 30 MCQ in each testlet). Because it is a shorter exam compared to other sections, that means that you have about 1.25 minutes to complete each question (30 minutes per testlet, leaving you 45 minutes for each simulation).
The AICPA BoE has set the following target weights for skills testing:
Communication (0% – 14%)
Research (9% – 19%)
Analysis (13% – 23%)
Judgment (8% – 18%)
Understanding (45% – 55%)
Based on the Content Specification Outlines, Regulation covers the following areas:
Ethics and professional responsibility (15% – 20%) Professional conduct, independence, confidentiality, due care… you know, all the good stuff that makes you a CPA. Keep in mind this area will no longer be covered in REG after 2011.
Business law (20% – 25%) Formations and terminations of businesses, authority of agents and principals, debtor-creditor relationships, government regulation (federal securities acts – heavy tested!!), negotiable instruments, insurance.
Federal tax procedures and accounting issues (8% – 12%) Just as it sounds, this area covers federal tax procedures as well as cash, accrual, percentage of completion, contract and installment sales.
Federal taxation of property transactions (8% – 12%) Assets, depreciation and amortization, exchanges, and capital gains.
Federal taxation – individuals (12% – 18%) Gross income, pass-through entities, exemptions, AMT, retirement, estate and gift taxes.
Federal taxation – entities (22% – 22%) S-Corps, partnerships, LLCs, LLPs, and trusts.
Studying for REG should take between 80 and 100 hours depending on how familiar you are with the concepts before you begin studying and your professional experience with the material. Obviously if you work in tax you’ve got a leg up and can spend a little less time reviewing taxation.
Good luck and join us tomorrow as we review BEC!
Fannie Mae is looking for an accounting manager who will manage a staff responsible for collecting, recording, analyzing, and reporting accounting transactions.
The position is located in Dallas, requires six years experience, including 2-4 years of management experience and a CPA license.
Company: Fannie Mae
Title: Accounting Manager – REO and Reserve Accounting
Location: Dallas, TX
Description: Manage a team engaged in collecting, recording, analyzing, and reporting accounting transactions. May manage operations related to general accounting or other specialty areas. Hire, manage, train, develop, and evaluate staff. Develop, implement, document, and ensure adherence to practices and procedures. Participate in or lead special projects.
Responsibilities: Manage daily team activities related to production of timely, accurate, and reliable financial information including profit and loss and balance sheet accounts, booking accounting transactions, preparing and validating account reconciliations, and resolving issues and exceptions on a timely basis; Plan, review, and/or prepare internal and external reports, schedules, and statements; Review, establish, and monitor financial controls. Identify opportunities to streamline and automate. Improve efficiencies to reduce costs; Respond to Audit, consultant, and other stakeholder inquiries and requests; Identify and facilitate technology changes to support business needs; Coordinate and administer assignments, monitor team progress, and maintain schedules; Develop team members and provide ongoing professional guidance and direction.
Qualifications/Skills: Bachelor’s Degree in accounting required; CPA required; 6 or more years of progressively challenging experience in accounting, financial analysis, application of accounting principles, and accounting controls; 2-4 years of management experience with motivating, coaching and developing staff in pursuit of creating a performance driven culture. Additionally, experience managing complex projects involving multiple cross-functional stakeholders and strict time constraints required; Understanding of complex accounting regulations and guidance, including GAAP, SEC, FASB, AICPA, required. Strong knowledge in accounting pronouncements associated with real estate strongly desired; Previous experience in an SEC reporting environment and/or Big 4 Public Accounting experience preferred; Experience with accounting processes of a mortgage company, large financial service institution or real estate company required.; Previous experience implementing and documenting SOX controls required; Demonstrated ability to manage and direct a team with an emphasis on developing the team to high performance; Ability to provide regular feedback to team members and prepare performance reviews as required by company timelines.
See the entire description over at the GC Career Center and visit the main page for all your job search needs.
Dick Jenkins is a bad, bad tax accountant; the Justice Department says so.
“Given the sheer brazenness of Jenkins’s conduct, he is essentially stealing … from the U.S. Treasury,” said U.S. District Judge Dale A. Kimball, who entered the civil injuction against him last week. Jenkins was accused of filing $393 million in fraudulent tax refunds, including a single $210 million dollar refund for one customer and $402,920 for himself that he didn’t have coming (I don’t care how good you think you are at deductions, that’s BS).
Jenkins was not barred by the court from doing taxes forever because he screwed his clients (they received $294,292 in fake refunds) but because “Jenkins’s conduct results in irreparable harm to the United States.” You heard right, the Salt Lake Federal Court is pissed because he tried to remove $393 million from the Treasury through tax fraud, who cares about the clients?
Maybe this is what the PCAOB was talking about when they mentioned unusual transactions without giving specifics. I’d say it qualifies.
Salt Lake Federal Court Bars CPA from Preparing Tax Returns for Others [Media Newswire]