CPA Ethics
Jun 30

CPA’s Ethics: Four Questions for Better Decisions

By Charles Hall | Accounting and Auditing

In this article, I address CPA’s ethics and the benefits of making good decisions.

Men are alike in their promises. It is only in their deeds that they differ. Molière

CPA Ethics

We’ve all been there.

Your client wants you to sign off on an issue, one that is in the land of gray–you know, that place where there is no black or white. And, of course, the issue has significant dollars attached to it, so it’s important.

Your anguish rises, so you try to see the Great Oz, but he’s hiding behind that curtain, smoke billowing, lightning crashing–but no advice. Since the wizard has no wise words of wisdom, you need someone, or at least something, to help you. Here are four questions you can ask yourself when you face ethical decisions.

CPA Ethics: Four Questions for Better Decisions

Here are four questions to ask:

  1. How would I feel if my choice was placed on the front-page of the local newspaper (or in the Journal of Accountancy)?
  2. What would my father or mother do (or anyone else you greatly respect)?
  3. What would I advise my child to do? (If your child is three, pretend she is thirty.)
  4. What’s the worst thing that could happen? 

Can questions such as these really help? Let’s see. 

County Fires Auditor

Many years ago I was doing an audit of a local county government. I discovered the county commission chairman had arranged for a material purchase of property from his son without using the required bid process, and the transaction was illegal in our state. (I had recently started a CPA firm, so this was one of my few clients. I needed the audit fee.) When I discovered the irregularity, I met with the county commission chairman and told him I would report the transaction in the audit report. He leaned over and quietly said to me, “if you do, you’ll no longer be the auditor.” No one else was in the room.

Later I was physically threatened, and for some time I feared what might happen to me. The decision of what to do, however, had already been made. In asking myself questions such as those above, the right course of action was obvious. 

I reported the illegal transaction and was immediately fired. It cost me, but I knew it was the right thing to do. (Interestingly, when the news broke, a reporter contacted the county commission chairman and the county manager. The county manager stated that I had “my hand in the till,” and that the auditor–that’s me–had stolen money, though they never said how.)

Because of situations like this one, client acceptance has become important to me. We need clients with integrity. Yes, we do. 

When you face a decision such as this one, here are four actions that may help. 

CPA’s Ethics: Four Actions for Better Decisions

Here are four actions to take:

  1. Call the AICPA Ethics Hotline or the AICPA Technical Hotline (877-242-7212). (They are independent of the issue, so they will give you a straight-up answer.)
  2. Call a CPA with knowledge in the area of concern, and ask his or her opinion.
  3. Create a memo supporting your proposed decision, and share it with a partner, quality control department, or whoever is in charge. (I find that writing creates clarity.)
  4. Sit on it (if you can). I gain clarity as I allow the issue to percolate, and as I pray about it. I try not to make a high-stakes decision quickly. Hurried decision are usually poor ones.

Do the Right Thing

As you consider this article, remember, a clear conscience is a precious commodity. If you believe a particular course of action is going to keep you awake at night, your conscience is talking to you. Listen, even if it means less money–especially if it means less money.  

Do the right thing. You’ll be glad you did.

A CPA’s ethics are, and will always be, important.

Best CPA Firm Job
Jun 27

Best CPA Firm Job: Not Big Four

By Charles Hall | Accounting and Auditing

Are you looking for the best CPA firm job? Is a small- to medium-sized CPA firm a better choice for employment?

For me, that answer was (and is) yes.


Best CPA Firm Job

First CPA Firm Job

Coming out of college, I was told you’ve got to work for one of the Big Eight (now Big Four), so I took a job in Tampa, Florida, with one of those biggies. And I thought I had arrived. The pay was good, but the job was not.

After securing an apartment in Tampa, I was shipped out to Jackson, Mississippi, for two months to live out of a hotel. As the new guy, I was given all the grunt work they could find. I honestly felt like the audit team was trying to keep me out of the action, to push me aside. The training was nonexistent. So, I had a prestige job with terrible work experiences.

After being away from my apartment for several weeks, I returned to Tampa on Friday to find a large CPE book on my desk with directions to finish the book over the weekend. I gave notice of my departure the following Monday.

Second CPA Firm Job

My next step was to move back to my hometown, a small city in South Georgia, without a job. Thankfully, after a few weeks, I was hired by Draffin and Tucker in Albany, Georgia. The firm, at the time (1985), had about 45 people. The atmosphere was much more to my liking, and I was given many excellent opportunities for hands-on work. The main thing: I felt at home, so it was a good move. My wife and I wanted to be nearer to our family in middle Georgia, which led to the next place of employment. 

Third CPA Firm Job

I’ve worked for McNair, McLemore, Middlebrooks & Co. in Macon, Georgia, for the last fourteen years. We have about 130 people.

What I found to be true of these two firms is they provided good training and more opportunity to learn–and they cared about me.

I’m not saying small- to mid-sized CPA firms are for everyone. They are not. But for me, such firms fit my personality, and I have been (and continue to be) much happier.

The Right CPA Firm

I often ask college students looking for a first-time job to pay attention to the organization’s atmosphere. (If you can get an internship, do.) Ask about training and how they plan to grow you. Then, step into the firm that aligns with who you are.

You want your personality to fit that of the firm.

Big Four Jobs are Not Always Best

Big firms are not for everybody, contrary to what you may hear from your college professors.

Regardless, I hope you find that place that makes you happy—best wishes in finding your best CPA job. 

Auditing Equity
Jun 22

Auditing Equity: Why and How Guide

By Charles Hall | Auditing

Auditing equity is easy, until it’s not. 

Auditing equity is usually one of the easiest parts of an audit. For some equity accounts, you agree the year-end balances to the prior year ending balance, and you’re done. For instance paid-in-capital seldom changes. Often, the only changes in equity are from current year profits and owner distributions. And testing those equity additions and reductions in equity takes only minutes.

Nevertheless, auditing equity can be challenging, especially for businesses that desire to attract investors. Such companies offer complicated equity instruments. Why? The desire to attract cash without giving away (too much) power. And this balancing act can lead to complex equity instruments.  

Regardless of whether a company’s equity is easy to audit or not, below I show you how to focus on important equity issues.

Auditing Equity

Auditing Equity — An Overview

In this post, we will cover the following:

  • Primary equity assertions
  • Equity walkthroughs
  • Equity-related fraud and errors
  • Directional risk for equity
  • Primary risks for equity
  • Common equity control deficiencies
  • Risk of material misstatement for equity
  • Substantive procedures for equity
  • Common equity work papers
Continue reading
May 21

Estimating New Project Time for CPAs

By Charles Hall | Accounting and Auditing

How do you price a first-year engagement?

This is a question I received this afternoon from another CPA firm, but I’ve bumped into this issue several times through the years. In this post I’ll give you tips to assist you in estimating the time it will take you to complete a new project. 

Estimating New Project Time

Why is this hard? You don’t know how much time you’ll have in the engagement until you’ve done it—and you don’t have a crystal ball. Plus, you know you’ve bid on projects before and underestimated the time it would take (CPAs almost never overestimate); consequently, you took it on the chin. You don’t want that to happen again.

To state the obvious, the key is estimating the time it takes to complete the engagement and by what level of personnel.

So, how do you know? In short, you don’t, but here are some tips.

Time Estimate Tips

Ask what the present pricing is. This may be the most awkward part of initial conversation with a potential new client. Some CPAs don’t ask this question, but it’s one of the best gauges of the time it takes to do the work. If the client says, “We’re not providing that information,” then so be it. But you most certainly will not know if you don’t ask.

Another method is to do what builders do. Break the project into pieces and estimate the time for each part. So create a summary of each action necessary, and place an estimated time next to each part. Then compute the estimate price using your standard billing rates by personnel levels.

Finally, compare the project to similar projects in your firm. Similar projects are a great proxy for the estimated time.

Once you’ve documented the above, let someone else with experience review and give you feedback. Two eyes are usually better than one.

Also, consider when the project is needed. Is it a busy time of your year? If yes, then you may not want to lower your price (you may not want to bid on the project at all). If not, then maybe there’s some flexibility.

Is the project something you’ve never done before. Then consider the additional cost of getting into the new area: CPE, consultations with someone outside your firm, research materials, electronic workpapers.

Tendency to Under Estimate

The last thing I’ll say is you usually have a great deal more time in the first year of the engagement. I’d say, most of the time, you’ll have at least 50% more time than you estimated. Then, in subsequent years, the project should be more normal. Invariably, there are things you were not aware of in the bid stage.

Summary of Estimating New Project Time

Any way, there’s some ideas to consider in estimating new project time in a first-year engagement.

Remember to (1) ask what the client has previously paid (and back into the estimated hours using hourly rates), (2) estimate time for each part of the project, and (3) consider similar projects you’ve previously performed. Additionally, know that most people underestimate the hours it will take to complete a new project. 

Audit Lessons from a Brain Tumor
May 20

Audit Lessons from a Brain Tumor

By Charles Hall | Auditing

Did you know you can learn audit lessons from a brain tumor? Here’s my story.

One day while driving, I said to my wife, “Am I weaving?” I did not feel in control, and I was hearing clicking noises in my ears. My conditions worsened and the mystery grew over the next two years as I visited three doctors. They stuck, prodded, and probed me, but no solution.


Audit Lessons from a Brain Tumor

As time passed, I felt a growing numbness on the right side of my face. So one night I started Googling health websites (the thing they tell you not to do) and came upon this link: Acoustic Neuroma Association. I clicked and read, having never heard of an acoustic neuroma. While reading about the symptoms, it was as though I was staring at my diary. My next thought was “it can’t be a brain tumor.” I turned to my wife behind me and said, “this is what I have.”

The next day I handed the acoustic neuroma information to my doctor, asking, “Would you please order a brain scan?”

Two days after the MRI, I received my doctor’s call while on a golf course. He said, “Mr. Hall, you were right. You have a 2.3-centimeter brain tumor.” (I sent him a bill for my diagnosis, but was never paid–just kidding.) My golfing buddies gathered around and prayed for me on the 17th green, and I went home to break the news to my wife. We had two children at the time, ages two and four. Having just started my own CPA business six years before, I was forty-one years old. So, as you can imagine, I was concerned about my family and business, but strangely, I was completely at peace.

Shortly after that, I was in a surgeon’s office in Atlanta. The doctor said they’d do a ten-hour operation; there was a 40% chance of paralysis and a 5% chance of death. The tumor was too large for radiation–or so I was told.

I didn’t like the odds, so I prayed more and went back to the Internet. There I located Dr. Jeffrey Williams at Johns Hopkins Hospital in Baltimore. I emailed the good doctor, telling him of the tumor’s size. His response: “I radiate tumors like yours every day.” He was a pioneer in fractionated stereotactic radiation, one of the few physicians in the world (at that time) using this procedure.

A few days later, I’m lying on an operating table in Baltimore with my head bolted down, ready for radiation. They bolt you down to ensure the cooking of the tumor (and not your brain). Fun, you should try it. Four more times I visited the table, and I kept noticing everyone left the room–a sure sign you should not try this at home.

Each day I laid there silently, talking to God and trusting in Him. And my wife sat outside, lifting me up in prayer.

Three weeks later I returned to work. Twenty-two years later, I have had two sick days.

I’ve watched my children grow up. They are twenty-six and twenty-eight now–both finished college at the University of Georgia (Go Dawgs!). And a year and a half ago, my daughter had our first grandchild. My wife is still by my side, and I’m thankful for each day. Here’s a recent picture of my family at one of our favorite places: Cades Cove, Tennessee.

So what does a brain tumor story tell us about audits? (You may, at this point, be thinking, “they did cook his brain.”)

Audit Lessons Learned from a Brain Tumor

1. Pay Attention to Signs

It’s easy to overlook the obvious. Maybe we don’t want to see a red flag (I didn’t want to believe I had a tumor). It might slow us down. But an audit is not purely about finishing and billing. It’s about gathering proper evidential matter to support the opinion. To do less is delinquent and dangerous.

2. Seek Alternatives

If you can’t gain appropriate audit evidence one way, seek another. Don’t simply push forward, using the same procedures year after year. The doctor in Atlanta was a surgeon, so his solution was surgery. His answer was based on his tools, his normal procedures. If you’ve always used a hammer, try a wrench.

3. Seek Counsel

If one answer doesn’t ring true, see what someone else thinks, maybe even someone outside your firm. Obviously, you need to make sure your engagement partner agrees (about seeking outside guidance), but if he or she does, go for it. I often contact the Center for Plain English AccountingI find them helpful and knowledgeable. I also have relationships with other professionals, so I call friends and ask their opinions–and they call me. Check your pride at the door. I’d rather look dumb and be right than to look smart and be wrong.

4. Embrace Change

Fractionated stereotactic radiation was new. Dr. Williams was a pioneer in the technique. The only way your audit processes will get better is to try new techniques: paperless software (we use CCH Prosystem Engagement), data mining (we use TeamMate Analytics), real fraud inquiries (I use ACFE techniques), electronic bank confirmations (I use, project management software (I use Basecamp). If you are still pushing a Pentel on a four-column, it’s time to change.


Finally, remember that work is important, but life itself is the best gift. Be thankful for each moment, each hour, each day.