Is the PCAOB out to get accounting firms?

A couple of weeks ago, my audit class had a guest speaker, who coincidentally happened to be from the PCAOB.

Lately, I’ve been hearing about a lot of tension from working professionals about the contentious relationship between the PCAOB and the accounting firms. On one hand, the PCAOB is there to provide greater oversight over the accounting firm, which could definitely be needed in light of the accounting scandals that have occurred ever since the early 2000s.

However, on the other hand, the other end of the spectrum is that the PCAOB is out to get blood. Any mistake big or small they can find, they will crush the accounting firms with it and if the firms don’t comply, non-public portion of the inspection report will be released to the public. I like to call this non-public portion or quality control criticisms of the accounting firm “dirty laundry” because essentially it’s the stuff that accounting firms don’t necessarily want released to the public.

So is the PCAOB like Snidely Whiplash and out to get the accounting firms?

According to the PCAOB guest speaker, the answer is no.

My personal belief is that the PCAOB currently has a conflict of interest whereby the public is calling for greater oversight yet improve audit quality. These two interests conflict with one another when as a member of the PCAOB Inspection team, you’re trying to figure out is the accounting firm performing their audit correctly? What are they not doing that could improve audit quality? At the same time, when scandals pop up, the public is crying out stop these frauds from happening. Stop those bad accountants. Stop those auditors who aren’t doing their job.

So, what do you think? Is the PCAOB out to get accounting firms? Why?

 

Let’s probe.

As a dentist’s daughter, I admit when I hear the word probe, I automatically think of a dentist probing around his or her patient’s mouth looking for cavities. Sorry to all those who just incurred pain or nightmares by my mention of “dentist.”

However, yesterday in my ethics class, Hoshi Printer, one of the corporate panelists advocated the use of probing and using the sniff test to check to see if anything fraudulent could potentially be occurring in any situation that involves you. Thinking about my immediate career goals, his advice was really important to me because in audit, one of the big issues seems to be whether auditors are utilizing professional skepticism. The PCAOB has recently been calling out auditors for not utilizing enough professional skepticism in their audits.

Hoshi preferred to call professional skepticism “healthy skepticism” because you are trying to obtain clarifications, you want to ask questions without the attitude that this person must have committed fraud. Rather, he advocated “probing.”

Another panelist advocated asking questions using facts from competitor companies, comparable companies, or companies in the same industries. If Companies X and Y use this practices, why does Company B do things this way? This way, you’re asking for clarification and their cooperation to help you resolve this confusion rather than confronting someone and asking them to essentially admit that they committed fraud.

So, let’s do it. This upcoming year and thereafter, let’s probe.

Bonding over provisions

Yesterday, the provisions group project was due. Now, for the non-accountants out there, my provisions class is all about sheer beauty of income tax liabilities –  understanding the gripping calculations and the perfect presentation of the income tax accounts on the financial statements to the notes on income taxes that you can’t put down because they’re so mesmerizing.

Today, my class was so happy to turn in the group project for this class. Why? Other than the fact that it’s over?

Let’s just say that over the course of two weeks that we had to do this project, it was impressive how much time and effort everyone in the class put towards this project. Literally, if you looked at the room reservation schedule on Friday and Saturday this past week, it was all meetings for provisions and not just your one-hour meetings. Rather, it was like your full day meetings. My own group devoted over 120+ hours to this project.

That’s gross.

And at the end of day, while we’re not sure if everything we listed was completely correct, one thing that my class and group did do was bond. Every time, we saw each other in the library, it was all about how are you? What’d you think about that valuation allowance? When we chatted over Google Talk, we bonded over our frustration of trying to get the debits to balance the credits. “What do you think we do about that state NOL?”

While this might just mean that my program is full of a bunch of nerds, they’re a bunch of awesome nerds.

As Beca (Anna Kendrick) from Pitch Perfect would say, “I love you, awesome nerds!”

 

Accounting scandal? WHAT?!?!

This past week, the accounting world was shaken when it found out about the KPMG insider-trading scandal. For many people in my program, this scandal felt very real given that it literally happened in our backyard. It was definitely the topic of the week especially given that many of the Leventhal professors are either past partners or current partners of Big 4 firms, including KPMG and many of my friends are going to work in KPMG’s LA audit practice this upcoming fall.

Throughout the discussion surrounding this topic, one thing that I really appreciated was hearing my audit professor talk about this issue. To him, this issue goes beyond KPMG and rather than thinking about this situation in the context of only KPMG, we should realize that the ramifications of these scandal really extend to CPAs and the whole accounting industry.

To me, the fact that my professor chose to use this issue as a lesson we could all learn from rather than as a chance to snicker at one of his past rival firms really impressed me. I really appreciated how professional my professor was about this situation and how he emphasized that this situation could have happened at ANY firm.

Obtaining your CPA license is more than just being recognized for certain smarts you have or having the ability to do a specific task. Rather, it’s something precious and if you violate the agreements of your CPA license and you’re caught, you can consider yourself done in the industry. DONE! As in you’ll never be able to be hired by anyone in that industry anymore.

Looking at my ethics class, really the only career option you could pursue seems to be to become a speaker and receive money from saying how sorry you are and what happened in your own particular situation as in the case of Weston Smith and Justin Paperny.

Lastly, the other interesting thing to think about in relation to this issue is who is Herbalife and Skechers going to find to do their audit? As a result of the independence rule for firms, Herbalife and Skechers are unable to hire certain firms to be their auditors if those firms provide certain services for them.

Dating after College?

After finding this article through a close friend’s Facebook status, it reminded of all the times I’ve talked with friends about how exactly do you find guys to date after college?

Luckily for me, I have not yet had to experience the challenge of figuring out how to date guys after college. But after conversations with friends, this is what the real world seems to look like.

On the female side, it is incredibly challenging to find a man or woman of similar status – good looks, smarts, goals, education background, interests, and sometimes age.

On the male side, it’s seen as socially appropriate whether the man chooses a mate at any end of spectrum of similarity.

So, where do you go to find a mate? My quick answer to that if circles of friends, volunteering, the internet, areas of individuals with like-minded interests, and work do not help you find that “other,” there’s always grad school.

Granted grad school is very expensive and there is no guarantee that you will find a mate. However, if you’re looking for someone of similar social status, graduate school will be able to provide access to that type of pool.

But, at the end of the day, why is this question of dating or finding a mate even important? Isn’t one’s career enough?

I think that depends on your answer how much do you feel the need for a mate?

As a male, if you ever plan on running for public office, a mate is crucial. How many single servants of public office do you know?

As a female, there’s a inner conflict of interest between the value of a personal life versus your career aspirations. Throw in the challenge of finding a mate, and life gets really interesting.

So as a sociologist, I’d say Susan Patton was on to something when she told young women to look for a mate in college if you’re looking for someone of similar status.

Also, if you want to have children without a partner, it’s doable, but at a huge cost to your work life. Without a partner to help out on the family side of things and you have kids, you either need to have enough money for a full-time nanny, have a very supportive network to help you raise your child, or raise your child at a huge cost to your work life.

Being a tutor…it’s not easy

If I had to describe what it’s like to be a tutor for financial accounting, I could sum it up with one word.

Challenging.

I could even use two words.

Very challenging.

Well, what’s so difficult about it?

In general, for the most part I definitely enjoy tutoring.

However, like everything else in life, there’s a desire within me to aspire for greatness. Tutoring is no different. You want the student you’re tutoring to understand and perhaps love the material. You hope that your student understands the relationship between the problems and the real world.  You hope that your student will understand the problem and then understand how to solve that problem even if you change the problem and put a twist on it.

You hope to pass on that love of accounting.

But, financial accounting is difficult. It’s puzzling. It doesn’t make sense at first. There’s a huge learning curve in trying to figure out the problems. Learning financial accounting is like learning a whole other language.

At the same time, for many of those in my generation or the generation below me, there’s this expectation of instant gratification. We assume that we’ll be able to get the problem without investing that much time and effort into it.

Financial accounting is not like that.

As a tutor, I hope that my extra efforts will help make that difference in terms of understanding accounting better. I think of ways to increase students’ exposure to accounting from holding extra review sessions, making myself available for individual tutoring sessions, and most challenging of all, making study guides and making my own problems and solutions.

Tutoring a large review session of 30-50 students often makes me realize I should go easier on my teachers. It’s tough being in front of that many students. Are they understanding the material? Are they feeling like this review session is effective? Does it make sense why they need to know this material? Did I make a mistake and utter something completely wrong?

It’s tough making problems. At this point, I have come to realize that writing textbooks is most definitely not in my future. The thought of making a gazillion problems for each chapter sounds like a terrible idea to me. I applaud all those authors, who have done that.

However, at the end of the day, I realize being a tutor is worth it…when I see that light bulb look occur in a student I’m tutoring or when I get an email from a student on a non-school night asking for clarification when they could be doing something else, but instead, they’re studying accounting.

So if you’ve ever considered being a tutor, try it out.

Story time!

Income taxes can definitely get really dry every now and then. However, one of my favorite things about this class is story time. On the first day of class, my professor told us that if you find yourself ever getting sleepy in class or distracted, just say the words, “Story Time.”

So, what usually ends up happening is that halfway or three fourths of the way through my income tax class, someone will usually say story time. My professor uses story time to break up the class and pass on some life lesson related to accounting to my class.

This past week, he told us this story about this guy, who was a really big deal at the time of the story. He was a famous basketball player, current senator, and had even been once considered as a presidential candidate. Essentially, the guy considered himself to be big stuff. At this conference, where he was the keynote speaker, during lunch time, he asked the waiter who was putting pats of butter on the bread plates for more butter.

The waiter said no.

The man asked him, “do you know who I am?”

The waiter replied, “No.”

The man said, “I’m the keynote speaker.”

The waiter replied back, “Well, I’m the man who controls the butter.”

Essentially, the moral of the story is to be nice to those around you. In the accounting world, it’s always a good idea to be on the good side of the executive assistants otherwise, you might not get the butter when you need it.

Mental Models. Cognitive bias. There’s an alien in my brain!

First of all, congrats to all of my classmates who found out that they passed a section of the CPA exam! It definitely is not easy studying for the CPA exam while studying for classes simultaneously and then to pass the exam! Impressive!

One question I’m asked often is how did you go from sociology to accounting. In reality, you’d be surprised at how similar some aspects of sociology are to aspects of accounting.

One of those aspects relates to judgment, framing, and biases, topics that I learned when I was taking Soc 150A, Social Psychology with Professor Robb Willer. Sidenote – if you have any free time or just want to listen to something interesting, I definitely recommend watching the Soc 150A youtube videos. It was one of the most applicable and popular classes while I was at Cal. 

This concept of judgment, biases seemed to be the common thread throughout my classes these past couple of weeks.

In my Negotiations class, we call the overall factor that affects your thoughts and actions “mental models.”

In my audit class, we call these “cognitive biases.”

So what exactly are these mental models and cognitive biases?

These influences and frames essentially predispose to think a certain way and can  potentially impair our decision-making process and our judgment.

However, do YOU have any predetermined biases or frames? One of the easiest ways for those in school to think about this is think about the last paper you had to write. You and your classmates were given the same prompt. However, you and your classmates most likely wrote different essays. Your frame is the way you wrote your paper and your primary focus throughout the paper. Your classmates’ frame is the way they wrote their paper and their primary focuses throughout their papers.

It’s the same exact thing with a decision.

Crazy talk.

Do you have a mentor?

(Warren Buffett and Bill Gates – one great mentorship)

Do you have a mentor? Do you have a person in your life who helps you look out for your best interests? Do you have someone who’s there to objectively listen to you and provide some helpful thoughts?

This past fall, the AICPA decided to set up a pilot mentorship program for interested AICPA scholarship recipients. Going into this program, I definitely wasn’t quite sure how helpful an AICPA mentor would be for me. But like everything else in my life, I knew it couldn’t hurt to try and check it out.

This decision was one of the best decisions I made all fall. My assigned mentor has been fantastic at helping me think more objectively about myself and my actions, thinking about what’s currently happening in the accounting world, and how to set myself up for success in both graduate school and in public accounting. Another part of the reason this relationship has been super effective for me is that when I talk to him, he listens to me. When I talk to him, I don’t feel like I’m being judged or like I’m trying to compete with him. Plus, he has a similar background to mine, remembers what it felt like to be in my shoes at that time, and is able to provide insightful advice.

Irreversibility and Uncertainty

One of the greatest things about second semester for MAccs is that we tend to have greater flexibility in choosing classes. As a result, many of us tend to take MBA classes.

One of the MBA classes that I’m currently taking is Corporate Financial Strategy. The resounding message of the class seems to be that there’s no one correct answer to a problem.

What!?!

This baby’s face was my exact reaction. No joke.

But seriously, for finance in considering the NPV of an investment, there are many different costs and ranges of possibilities that we could potentially consider. Did you carefully evaluate all potential pathways? Are there any exceptions that could possibly happen? What assumptions are you basing your solution off of? Should you hit the go button for this investment?

And then, thinking that my mind couldn’t get blown any further, Professor Dietrich gave my class two words.

Reversabilty. Uncertainty.

Now, uncertainty is something that my mind usually thinks about. Murphy’s Law states that if anything can go wrong, it will. Story of a bad day. We don’t know what the future will hold.

However, thinking about decisions have reversibility is something that I don’t take into consideration. Is your decision reversible? Would it have been possible for the two CEOs behind the 787 investment to delay that investment 10+ years ago? How expensive has it been for Kim Kardashian to reverse her marriage to Kris Humphries? All of these decisions involve future costs that we need to take into consideration. However, those future costs could be something such as future happiness or misery for the marriage question or being able to find a job in terms of one’s decision about career choice or major choice.

Now, do you feel like Adam Sandler?