Category Archives for "Accounting and Auditing"

Solo Accountant or a Partnership: Which is Best?

By Charles Hall | Accounting and Auditing

Solo accountant or partnership. Which is best? Today we tackle this question.

We all live with fear, but accountants have their own variety. I think back on my college years and the wondering about how my life and career would unfold. And I wanted—really wanted—to see the future, but could not. 

At twenty-one, I would have given a prince’s sum for a crystal ball. But even if the seer’s tool existed, I had no money. So I ventured out, hands extended in darkness, hoping things would go well. And why did I desire to know the future? To avoid mistakes. To lessen my fear. But mistakes—not crystal balls—are how you learn.

Through the years, my career evolved blandly, though with a few jerks and screams (I had a brain tumor; shortly after that, my son has born with cystic fibrosis). But, overall, my work life has unfolded—like most—day by day.

My First Job

In the early days of my first job, I realized how little I knew, though I had a masters degree in accounting. Like a new golfer, I felt—and looked—awkward. My college professors trained me well, but I was still a duffer. I muddled my way through the first year, little realizing how much I was learning—and not understanding my firm was doing me a favor. They were paying me to learn. (You only get this perspective—later—when you are an employer.)

One year into public accounting, the lights came on. I finally hit shots like a real accountant. I finally felt normal. I finally moved more naturally. But after three years in my junior role, another firm came calling, asking me to move. They offered more money and more opportunity, so I ventured out.

My Second Job

My second job was more of an apprenticeship. My boss mentored and trained me. He allowed me to assume responsibility. I think you could say this is where I came into my own. But even though I liked my boss, we had disagreements. He promised one thing but delivered another. I found myself doing most of the work with no movement to the promised position. My boss was a good man, but at age 68, it was obvious, he had no desire to retire (though that was the agreement).

So, I left with no job. (I know. Not smart, huh?) This was quite scary, especially when you have two children and a wife at home—in other words, no other income. What did I do? I hung my shingle. 

Solo Accountant

In those years, I had my greatest joys and fears. To go from nothing to something was like climbing a mountain. And I am not the adventuresome type. In the early days, there was no cash flow—and I mean none. I recall, like a scene from a Charles Dickens’ story, nights of soup and bread. And much of the time, I had this deep sense of fear. Nevertheless, I survived and—at times—even thrived.  

The joy of owning my own firm came in the freedom to come and go as I pleased, to do what I wanted—and when I wanted. But freedom comes with baggage. Namely, overhead, unsteady cash flows, and legal exposure. Even so, the freedom to make my own decisions was a breath of fresh air. If I wanted to pursue a new strategy, I did so. If I wanted to leave work early, I left. If I wanted to buy a new computer, I bought it. No committees. No boss. No one was telling me what I could or could not do. It was nice.

But in working alone, I learned a few things about myself. I love freedom, but I hate fear. I also found that I am more productive in a group environment. Why? Accountability. Additionally, I discovered I need more wisdom than I (alone) possess. As much as I hate to admit it (call it pride), I need a group of people. 

Partnership

So, for most of my career, partnerships have been my work environment of choice. I like steady paychecks. I enjoy having answers to my questions just down the hallway.

The wisdom of partnerships is a beautiful thing. The Bible provides this word: 

Plans fail for lack of counsel, but with any advisors, they succeed. Proverbs 15:22

I can’t count the times I have seen problems surface—seemingly—with no answer, but then, in a partnership meeting, ideas, disagreements, thoughts are tossed around. And in the end, there is an answer. Creative, wise, sound.

Multiple perspectives meld together to provide insight, a wisdom much greater than my own. But submission is necessary to be a part of a partnership. And I think that’s hard for most people, including me. And while I desire to do as I please, the power of the group is real. People working together often achieve what individuals cannot.   

Solo Accountant or Partnership – Which Do You Prefer?

So, which is best? Solo Accountant or partnership?

In the end, the decision to work alone or in a group is a personal decision based on our own bents. Some people work better by themselves and want freedom more than anything. I get that. Others find success in a partnership. So which are you? One who likes to work alone or one who loves a group? What makes you the way you are?

For additional insights, check out my post: What I Wish I had Known About Public Accounting.

Debt Issuance Costs: New Parking Place

By Charles Hall | Accounting

Debt issuance costs have a new parking place. For some time now, such costs were booked as a deferred charge (an asset). Now, these cost will be netted with the related debt. 

This change is required by Accounting Standards Update No. 2015-03, Interest – Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30).

If you have not already done so, you need to adopt this standard for years ending December 31, 2016. This is a change in accounting principle.

Accounting for Debt Issuance Costs

ASU 2015-03 (ASC 835-30) states the following (bold emphasis mine):

How to Solve Accounting Problems Quickly

By Charles Hall | Accounting

Do you ever need to solve accounting problems quickly?

I often hear the words, “Hey Charles, I’ve got a quick question,” and they launch into their issue, hopeful I can look into my crystal ball and give them an answer. As it turns out, I do have one. I keep it on my desktop. You probably have one too.

Most CPAs, when confronted with an accounting Gordian Knot, begin their quest to cut through the problem with their mighty sword–the GAAP Guide. Ah, an excellent choice for sure, but is it the best place to start? Or how about the granddaddy of them all? The FASB Codification. Another fine choice, but it’s an 800-pound gorilla. So where’s the best place to start? The crystal ball.

And what is the crystal ball? It’s your disclosure checklist.

You say, “but it’s just a laundry list of accounting requirements.” Yes, but it’s a great pointer (to answers).

To solve accounting problems quickly, do a word search in your disclosure checklist. My checklist is in Word, so I use the find feature (click control, find) to locate a keyword. Try to use a unique word where possible–such as noninterest or contingent. You may have to click next a few times to locate the relevant text. Once you find the relevant text, the pathway to your solution lies before you: the checklist provides you with the applicable FASB Codification ASC section (e.g., 850-10-50-5). You can key the number in the FASB Codification or your research library to find your answer.

Now you can provide a quick answer to that difficult question (and look like a genius). When your peers ask, “How did you find the answer so quickly?” Tell them, “My crystal ball.”

Confirmation of Receivables: Is It Required?

By Charles Hall | Auditing

When is the confirmation of receivables required?

Confirmation of Receivables is Usually Required

AU-C 330 paragraph 20 states the following:

The auditor should use external confirmation procedures for accounts receivable, except when one or more of the following is applicable:

1. The overall account balance is immaterial.
2. External confirmation procedures for accounts receivable would be ineffective.
3. The auditor’s assessed level of risk of material misstatement at the relevant assertion level is low, and the other planned substantive procedures address the assessed risk. In many situations, the use of external confirmation procedures for accounts receivable and the performance of other substantive procedures are necessary to reduce the assessed risk of material misstatement to an acceptably low level.

If receivables are material and confirmation procedures will be effective, then confirmations must be sent. (Normally, the existence assertion related to receivables is moderate to high. So, 3. above is not in play.)

When are Confirmations Ineffective?

AU-C 330.A56 states:

External confirmation procedures may be ineffective when based on prior years’ audit experience or experience with similar entities:

• response rates to properly designed confirmation requests will be inadequate; or
• responses are known or expected to be unreliable.

If the auditor has experienced poor response rates to properly designed confirmation requests in prior audits, the auditor may instead consider changing the manner in which the confirmation process is performed, with the objective of increasing the response rates or may consider obtaining audit evidence from other sources.

Alternative Procedures When Confirmations are not Sent

What audit procedure should be performed if confirmations are not sent? Usually, the auditor will examine cash collections after the period-end. Care must be taken to ensure that the subsequent collections examined relate to receivables that existed at period-end and not to sales occurring after period-end.

Required Documentation When Confirmations are not Sent

AU-C 330.31 states that “the auditor should include in the audit documentation the basis for any determination not to use external confirmation procedures for accounts receivable when the account balance is material.” So, it is not sufficient to simply state that the use of confirmations is ineffective. We should state that we tried to confirm receivables in a prior year without effective results or that we tried to confirm receivables for clients in a similar industry, but without effective results.

The auditor should include a memo to the file or add comments on the receivables work paper explaining why confirmations were not sent.

See my post: Auditing Receivables and Revenues.

An Auditor’s Cell Phone

By Charles Hall | Accounting and Auditing , Technology

A cell phone is an auditor’s Swiss knife. And with all the options, I am continually looking for another way to use mine. So I’m sharing my ideas with the hope that you will likewise share yours. While I use an iPhone, I realize there are plenty of other nifty cell phones; my comments below are directed not at a particular phone but how I use mine as an auditor.

Below you will see a screenshot of my cell phone home screen and information concerning how I use various apps.

 

Camera

I use this iPhone app to capture pictures of documents as I perform internal control walkthroughs. I embed these pictures in my walkthrough documentation. A picture says a thousand words. If the person explaining the accounting system creates pictures on a whiteboard, I take photos of the drawings.

Sometimes I need a copy of a page from a hardback book (e.g., research); rather than using the copy machine, I take a picture of the page and email it.

Keynote

Keynote is Apple’s version of Powerpoint. I build the Keynote slide deck for presentations and use my phone to present. If you use iCloud, the slide deck you create on your iPad will automatically appear on your iPhone (if your settings are right).

You can also present a Keynote slide deck using your iPad as the presentation device and your iPhone as a remote. Your iPhone moves the slides of the iPad slide deck as you stand at a distance. Both devices (iPad and iPhone) must be on the same wifi for the remote feature to work.

Kindle

I buy most of my books using the one-click option in Amazon. Most books are 50% less in price (or more) than physical books. You can highlight books you read and then create a summary of those highlights (which I then place in my searchable Evernote account–see below); you can copy and paste these highlights to Word or other software.

If I am waiting on a plane, taxi, a friend, a doctor, etc., I have all my books handy for reading. You can even purchase my fraud prevention or SSARS 21 books (shameless advertising, yes I’m guilty).

Evernote

I love Evernote! It is my cloud storage, and at $70 per year for the premium version, it provides me with tremendous power. All the research I have performed and stored is available everywhere I go. All the articles I have saved are at my fingertips. (And it is so easy to store information in this application.) At present, I have thousands of screenshots, websites, articles, presentations, conversations, books, pictures, and answered research issues. It’s my knowledge library.

You can use this app to record conversations that are automatically loaded into Evernote.

Dropbox

I also use Dropbox to store some documents. Most apps connect well with Dropbox, and it handles large video or audio files well.

1Password

I save all my passwords in 1Password. No more wondering how I’m going to get into my computer with a password I’ve forgotten–again (I know this never happens to you).

Messages

I text my audit team members to see how things are going. Messaging is much more efficient than calling if the communication is short. (You can also take a picture of anything with Camera and message the picture. If your audit team member needs to see something on your computer screen, take a picture of it and message the shot to them with comments.)

Don’t want to type the message? Just say it out loud, and the app will record your words for sending.

Maps

I use Google maps to get to new audit locations.

Weather

I use the Weather Channel’s app to check the weather before I leave for trips so I can dress appropriately.

Pandora

Mozart or U2 makes my audit day go by much better. If you prefer music without ads, you can pay Pandora for the service. 

Sharefile

Sharefile is my go-to app for sending sensitive client data. With hackers everywhere, I don’t risk sending sensitive client data in emails.

Fantastical

My Fantastical calendar app syncs with my Outlook calendar, so regardless of where I am, I can check my appointments and schedule the same. I can also add reminders in Fantastical, so I don’t forget the milk.

ToDoist

Do I keep a to-do list? Yes, in my ToDoist app. This app integrates with Outlook.

Audible

When I am driving, I listen to books using Audible. If you’re on the road a lot, this is a great way to redeem your time.

WSJ

I read the Wall Street Journal to keep abreast of current events. This WSJ app provides me access to one of the best newspapers in America (and there aren’t many these days).

Siri

While not an app, I push the button on my iPhone and Siri asks me what I want to do. This is how I make phone calls by simply saying, “call my wife,” for example. I also send texts (or emails) the same way by saying “send a text to C.S. Lewis”; then I tell Siri what I want to say–works amazingly well; she even understands my southern accent (and that, my friends, is truly amazing).

What About You?

How do you use your cell phone at work? I would love to hear from you.