CPA Success

Is 'government transparency' an oxymoron? Maybe not.

The word of the recession so far seems to be "transparency."

We're doling out money by the billions, but nobody's quite sure how it's being spent. The companies we're bailing out are dishing out huge bonuses to their C-suite executives. Everyone wants their financial information delivered (a) accurately, and (b) immediately.

Sounds like an argument in favor of XBRL to me. But that's a blog post for another day.

Instead, I want to talk about the ways in which politicians are keeping constituents informed these days.

Cases in point: Recovery.gov and Maryland StateStat.

With Recovery.gov, the Obama administration has taken its love of electronic and social media and applied it to the economic recovery. The site breaks down how the money is being spent, offers readers the opportunity to give feedback, and includes a state-by-state breakdown of how the recovery funds are being spent.

Which leads me to Maryland StateStat. It's the statewide offspring of Gov. Martin O'Malley's renowned CitiStat program and is designed to make the state more accountable in how it spends taxpayers' money. The site shows Marylanders how the state is spending its share of the federal government's stimulus money and offers up-to-date financial reports from the state Department of Transportation, the Department of Human Resources, the Department of Labor, Licensing and Regulation and other state agencies.

OK, I know: You have to take these sites with a grain of salt. They are, after all, the products of politicians. To a certain extent, they're telling you what they want you to hear.

But here's the thing: No one has told us anything before. Transparency? It's traditionally missing in action. Today, we have some elected officials who are committed to doing what the recession's villains have thus far refused to do: They're at least pretending to tell us what they're doing with our money.

Baby steps? Maybe. But it's progress nonetheless. And I'll take it.

How to be more involved in your profession

When two past chairs of the Maryland State Board of Public Accountancy (and one of whom was a prior MACPA board member, committee member, etc.) ask to meet with you, you go.

The question I was asking is, "What would make them want to meet with us right in the middle of one of the busiest tax seasons on record?"

The firm is Abrams, Foster, Nole & Williams, P.A. (Pictured are me, Alicia Foster, Helen Holton, and Arnold Williams.) They wanted to discuss how they could get their CPA firm of 40 more involved in the profession through the MACPA and how they could use some of our leading innovations to help them recruit and retain the new generation entering their firm.

Needless to say, we were honored.

Arnold had on that trademark grin of his as he called in his IT manager, Jonathan, and asked him to log us on to Second Life. He then asked us (Jackie Brown and I) to give them a tour of our islands -- CPA Islands 1 and 2, that is. Arnold had attended our last CPE session via Second Life (see what blogger Dave MacDonald had to say on his blog post, Layman's Story of Professional Development in Second Life) and wanted to share his epiphany with his colleagues. He explained that he had been reading about how to engage the "gaming" generation and finally took the plunge to get in and try it, and he was impressed. He sees tremendous potential to engage these digital natives with tools like Second Life.

We showed him our Educators' Pavilion with kiosks from many Maryland colleges and universities and several others from all over the United States. We showed them our virtual training centers, our exhibit hall for our Maryland Business and Accounting Expo, even some offices of a CPA firm and other strategic partners who are renting space on the island and using our facilities. He talked about his vision of how the firm could use this for CPE, meetings and recruiting.

We also showed him our latest free on-ine learning tool for us digital immigrants -- www.cpalearning2.com, a blog that teaches you the latest social media technologies in 15 minutes a day. You will learn about blogs, wikis, RSS, Facebook, MySpace and, yes, even Second Life in a safe, CPA-centric learning plan. Next we talked about the pipeline and our upcoming CPA swearing-in ceremony.

Our approach to the talent pipeline is to engage and serve members from the moment they think about a career (high school) through a happy retirement, with the hallmark event being their entry into the CPA profession as a licensed CPA. 

It turns out that Arnold is the man responsible for initiating the official swearing-in of newly licensed CPAs. Dring his tenure as State Board chair, he worked with the DLLR to start a tradition of having CPAs take an official oath to recognize the public interest and commitment to an ethical code of conduct as licensed certified public accountants. He recanted how at the last ceremony, he connected with many of his firm's former interns who were thanking him for getting their careers kick started.

He stressed how important this event is to recognize the importance of our profession, to strengthen our ties between the profession and the DLLR, and to celebrate the accomplishment of these young professionals. Check it out on this quick YouTube video of last year's event.

This event is sponsored by the top CPA firms in Maryland and will be held again this year in conjunction with the Maryland Business and Accounting Expo on June 16 at 6:30 p.m. at the Baltimore Convention Center.

We talked about the need for legislative and regulatory involvement. (Arnold volunteered to join our Legislative Executive Committee.) We gave them an update on our State Board activities (changes in CPE regulations, the 120 / 150-hour issue, etc.) Did you know that we attend every State Board meeting to advocate on your behalf?

Did you know that supporting professional associations leads to increased retention and productivity on the job due to higher levels of satisfaction and morale? See the study on association benefits for both employers and members from the latest research report and then join the other leaders in the profession with our 100 percent membership initiative.

Here are some of the "pipeline" resources we discussed:

• Student membership (free) at www.tomorrowscpa.org
• Special resources for CPA candidates
• New / Young Professionals Network, from graduation to passing the CPA exam up to 40 years young!
• Volunteer activities from committees to chapters to CPA Day in Annapolis and in the community.

Thanks, Arnold, Helen and Alicia, for taking time out to meet with us and for your support as a 100 percent member firm.

Scandals, fraud and CPAs: Students speak out

We want you to "delve into the recent corporate scandals that reshaped the accounting profession in an unprecedented way. ... This will hopefully harvest a group of  future accountants / CPAs that will not make the same mistakes."

That was from the e-mail I received from Seth Young, president of Salisbury's Beta Alpha Psi, talking about what they wanted in a presentation. This gives me hope about the future for this generation and us.

I had the privilege of presenting a session on fraud, corporate scandals and the impact on the accounting profession to a group of students at Salisbury University on Maryland's Eastern Shore. The session was to the school's business fraternity, Beta Alpha Psi, and the Institute of Management Accountants student chapter in the brand new Teacher Education and Technology Center on campus. This session was by the students and for the students and they picked the topic.

Fraud - Salisbury University Accounting Students

View more presentations from Tom Hood.

We had a great session with a lot of discussion. Here are some of the highlights:

• "I didn't realize how many people are likely to commit frauds." (Twenty to 30 percent will and 40 to 60 percent will at the right price, according to one study by the University of Missouri.)
• "Government should not be interfering in accounting standards like fair value. They don't understand accounting."
• "More government regulation is not the answer."
• "I will be more aware (of fraud) and ready to stand my ground better."
• "They should not be stopping short sales. That is how you can see potential problems in the market."

We had a great discussion about how transparency and XBRL are tools that they have (given their use of Web 2.0 and technology background). We finished with tips for them to stay ethical (the mirror test) and have the courage to "do the right thing":

1. Publicity test: How would your action look on national TV or in a headline?
2. Conscience test: Listen to your inside voice.
3. Parent test: If you had children looking over your shoulder, would they be embarrassed?
4. Role model test: Would your role model approve?
5. Universality test: What if everyone did this?
6. Golden Rule: Would you like to be treated this way?

These are sharp, astute students who are much more aware of the world than I remember when I was in college (assuming I can remember back that far). I came away form that session energized, hopeful and thinking how lucky our profession is to have this crop of students almost in our workforce.

Here are some of the resources I shared with the students:

• Madoff fraud: Markopolis whistleblower memo
• Sherron Watkins memo about Enron
• The MACPA's Accounting Reform Task Force report, circa 2002 during the Enron-Worldcom affairs.
• Wired magazine: "XBRL: Road Map for Financial Recovery"
• Wired magazine: "Recipe for Disaster: The Formula That Killed Wall Street"
• Transparency, Accountability, Efficiency: Time for a Revolution

Prior posts about student encounters on CPA Success:

• Salisbury: Top 5 ways to attract talent
• University of Maryland: Boomer meets a herd of millennials

I hope the students write in some comments with more of their thoughts and perspective.

Transparency, accountability, efficiency: Time for a revolution

"A little revolution now and then is a good thing." -- Thomas Jefferson 

Our profession has a rare opportunity to start a revolution that can help regain trust in our financial markets and government and unleash the power of the people. The seeds of that revolution can be seen in two unlikely places for CPAs -- Wired Magazine and The Huffington Post.

The revolution is about radical transparency, lower costs of government and business compliance, smart regulators, and an army of citizen regulators watching over the free markets and our governments (federal, state and local). The tools of that revolution are two of our favorite subjects here at CPA Success -- XBRL and the Enhanced Business Reporting Consortium, both started by the AICPA,

Dan Roth offers us a great starting place in his "Wired Manifesto":

Next, we can follow David Stephenson's advice and create smart regulation (is that an oxymoron?) using these same tools.

In his post, Recovery.gov: The First Step Toward Smart Regulation, W. David Stephenson sums it up like this: "If eventually adopted not just by Recovery.gov but agencies in general, such an approach could dramatically reduce companies' and local governments' reporting burdens; improve regulatory oversight by giving agencies simultaneous, real-time access to the same data; and, as a bonus, help improve organizations' efficiency."

This is not rocket science. It is already working and using a proven technology and methodology! I know because I had the opportunity to meet Harm Jan van Burg (thanks to my XBRL mentors, Eric E. Cohen and Mike Willis at PwC) from the Ministry of Finance in the Netherlands, who has created the model of this new form of "smart regulation."

Harm Jan led the Dutch Taxonomy Project, in which he helped save the Dutch government millions of euros and reduce the costs of compliance by businesses by $322 million annually. (For a country roughly three times the state of Maryland, that is not bad.) Australia estimates reduced costs of government burden of $800 million, New Zealand's estimate $55 million to $75 million. All of these are annual savings that recur year after year -- an annuity that benefits both government and the people.

There are examples at the FDIC, and even two states (Nevada and Oregon) have implemented XBRL into Standardized Business Reporting projects to create transparency, accountability, and efficiency.

(Pictured: Eric E. Cohen, Harm Jan van Burg, and yours truly at the Rutgers World Continuous Reporting/Assurance Conference, October 2008)

Diane Mueller, vice chair of XBRL International, talks about the opportunity in her post Free the Data: eGov and Open Standards, in a plea to President Obama's newly appointed CIO, Vivek Kundra, to use XBRL in his efforts to democratize federal government information. She writes:

"When President Obama appointed his new federal CIO, Vivek Kundra, last week, Kundra announced ambitious plans to "democratize" federal government data by making it accessible in open formats and in data feeds. His plan calls for the creation of a single point of access to all public federal information. The idea is to enable the data to be accessed by developers whose applications will open up federal data to the sunlight of millions of citizens by encouraging them to scrutinize how the Recovery Act’s dollars will be spent."

Vivek, if you are out there, please listen to Diane and the rest of us: What you are describing is XBRL.

Dennis Howlett over at the Accman blog says it well in his post recapping the latest developments in XBRL: "Whether Huffington Post can be regarded as a credible source for reporting on IT is another matter, but the fact the topic is entering the U.S. mainstream consciousness should be a wake up call to us all."

"The time to act is now," writes Dan Roth. "An exhaustive study by the Transparency Policy Project at Harvard University's John F. Kennedy School of Government — analyzing disclosure rules for everything from restaurant cleanliness to SUV rollover risk — found that there's a very brief window after any calamity for government to institute changes. (Wait too long and the special interests start regaining their confidence and pushing back.) In the financial world, the old order is still trying to find its new shape. So the window is, briefly, cracked. Caveat vendor."

But revolutions are not easy. Howlett offers this warning: "XBRL creates new opportunities but making the best of them requires new thinking. So far, the profession has shown itself to be occasionally opportunistic but not radical in the way it assists clients." I think it is time we get a little radical.

I encourage you to read the full article, "Road Map For Financial Recovery: Radical Transparency Now!" by Wired Magazine senior writer Daniel Roth and W. David Stephenson's post "Recovery.gov:The FIrst Step Toward Smart Regulation."

What do you think? Is it time for a revolution?

If so, I hope you will join us on June 16 at our Maryland Business and Accounting Expo, where we will continue this conversation with thought leaders from XBRL and EBRC. Who knows? Maybe it can be the start of the revolution.

Resources:

• XBRL and Public Sector Reporting Study, by the AGA
• Enhanced Business Reporting: It's Time has Come, featuring a podcast with EBRC founding member Bob Laux, CPA, of Microsoft and his presentation in Second Life (Bob will be speaking at the Expo)
• Lessons from the XBRL frontlines, a post featuring Maryland CPA Ken Kelly and his work at McCormick on XBRL (Ken will also be at the Expo)
• Virtual workshop examines reality of XBRL, featuring a presentation by Eric E. Cohen and Mike WIllis of PwC, who also will be at the Expo)

Bonuses? Corporate America says, 'We're not worthy'

Think they talked to the folks at AIG for this one?

A new survey from Watson Wyatt has found sharp increases in the number of companies that are freezing salaries, eliminating bonuses and adding "clawback policies" that reclaim portions of executive pay in the wake of poor financial performance.

In December, 21 percent of companies surveyed said they were freezing executive salaries; that number jumped to 55 percent in the most recent survey. Forty-eight percent of companies are planning to reduce their bonus pools by an average of 40 percent. Nearly one in four have added clawback policies.

“The recession has shone a light on executive pay, causing many companies to re-evaluate the long-term implications of their executive pay policies,” said Andrew Goldstein, Watson Wyatt's North American co-leader of executive compensation consulting.

That stands in stark contrast to AIG, which has come under extraordinary fire for extending $165 million in executive bonuses after receiving more than $180 billion in federal bailout funds. Nine of the 10 biggest AIG bonuses have since been returned.

As rage-inducing as those AIG bonuses are, there are those who believe we can't afford the time or effort we are putting into our outrage, and I tend to agree with them. A better exercise is to examine what got us to this point in the first place, which Time's Bill Saporito attempts to do in this article. The next step is to make sure we don't travel down that path again.

What are the odds?

Is your CFO certified?

Bob Tarola has a point. 

Last week, I attended the AICPA Regional Council meeting with our Maryland delegation. Maryland is well represented with two AICPA board members (Carter Heim and Lisa Cines) and one at-large council member (Robert Tarola, pictured in the middle), plus our designated and elected representatives (Lou Satchell; Ed Rommel, pictured at left; Tami Bensky; Al DeLeon, pictured at right; and Kimberly Ellison-Taylor).

At that meeting, I had a chance to catch up with our volunteer leaders and we had a good discussion about a topic that is extremely relevant in light of the recent financial scandals and auditing issues. The question is: Why is the emphasis on corporate and accounting scandals always focused almost solely on the auditors? What about the preparers?

The point is that you cannot "audit in" the quality of financial reporting. There should be a renewed emphasis on the competency and qualifications of financial preparers -- CFOs, CAOs, controllers, etc. -- in addition to the focus on auditors. The people who are the first line of defense in understanding and reporting on the financial and economic affairs of the business have as much or more obligation to the public interest than the auditors that check on them ... or do they?

The SEC's new sign-offs required by Sarbanes-Oxley and the requirement that a financial expert serve on public company boards are a good first step, according to Tarola, but do they cover accounting expertise? And what about the public interest?

That was the subject of our conversation while in New York. It is also covered in Bob's whitepaper, CPAs Can Be the Backbone of the Financial Reporting System. Bob makes the point that having demonstrated accounting expertise and the responsibility to protect the public interest that accompanies a CPA license may be an idea that can add one more layer of protection in the financial reporting process. He should know; he has been on both sides of the financial reporting process, as an auditor and as a preparer. Bob is the retired CFO of W.R. Grace and former audit partner at PricewaterhouseCoopers.

I agree with Bob and want to emphasize two key points that having a CPA license adds:

1. It is based on a uniform national CPA exam that tests practical competencies in accounting and auditing.
2. It is a license issued by states with an additional obligation to protect the public interest. That is very different from other credentials that do not include the additonal responsibility of a state granting you the rights, privileges and obligations that go with licensure.

Wouldn't it be nice if either the chief accounting officer or the chief financial officer certifying financial statements to the SEC was a licensed CPA? This would add one more element of oversight and responsibility to the public interest to the financial reporting process. It also is not the first time this idea has surfaced.

Funny how I was re-reading the MACPA's 2002 Accounting Reform Task Force (of which Bob was a member) whitepaper as I was prepping for a presentation I am giving on corporate and accounting scandals to accounting students at Salisbury University later this week. In it, I found the same recommendations. Our blue ribbon task force had these as two of our major suggestions for restoring public trust in financial reporting :

1. Have the principal accounting officer and principal auditor in corporations be currently licensed CPAs where possible.
2. Include an outside CPA on the audit committee to provide financial accounting and auditing expertise.

Even Financial Executives International included this concept in its recommendations during the Enron-WorldCom scandals of 2002. In its paper titled, Improving Financial Management, Financial Reporting and Corporate Governance, the FEI made a recommendation that "the principal accounting officer should be a licensed public accountant or possess equivalent knowledge and experience, and should be current and knowledgeable in the understanding of GAAP and the SEC’s rules and regulations governing the preparation and audit of financial statements."

It reminds me of our ad, "Your doctor is certified. Your lawyer is certified. Shouldn't your accountant (CFO or CAO) be certified?"

• Read Bob Tarola's whitepaper and tell me what you think.
• See CPAs commit to protecting the public interest at the official swearing-in ceremony in Maryland.
• See Bob's interview during our CPA road show in which he talks about a career as a CPA.
• Read the MACPA's accounting reform white paper.

Lawmakers 'not sure what to do.' CPAs can help.

Still looking for a reason to get involved in the legislative process?

Look no further.

We're on the verge of what could be some pretty significant regulatory change. Congressional leaders, angry about corporate malfeasance and anxiously looking for ways to make sure this financial meltdown doesn't repeat itself at some later date, are turning accounting rules and other financial regulations into their scapegoats du jour.

In doing so, though, some of them are making some pretty remarkable (though not terribly surprising) admissions.

For example, California Republican John Campbell, a member of the House Financial Services Committee, had this to say on a recent episode of NPR's "Planet Money" podcast:

"I can tell you that I'm not sure, even in my own mind, what I would do at this point. And I don't think I'm alone in that viewpoint. This stuff is not easy. There are a number of different alternatives, a number of different thoughts on how to do it."

Did you catch that? A member of the Congressional committee that will be playing one of the biggest roles in writing new regulation to oversee our financial institutions has admitted, in essence, that he doesn't know what to do. And the reporters at Planet Money say Campbell is not alone, that a number of members of Congress have offered similar opinions.

Here's where our nation needs legislatively active CPAs. We need people who are able to explain to lawmakers how new legislation and regulation will impact the nation's financial institutions, its small businesses, the clients of small businesses. And believe it or not, most lawmakers -- the good ones, anyway -- crave that kind of feedback from their constituents.

We need you, folks. Our profession certainly needs you, and our country needs you, too. Join our legislative advocacy team today. Let's start educating these folks before they start enacting laws that will impact our businesses and our clients.

Who cares what's under the hood? Let's go!

It took radio about 38 years to reach an audience of 50 million. It took television about 13 years.

The Internet did it in four years.

Things change pretty fast these days. That's why I'm always surprised when I bump into people who are still reluctant to embrace social media. The criticisms run the gamut: "It's a fad," or "It's a waste of time," or "There's no return on investment."

Wrong, wrong and wrong.

More than that, social media is changing the rules of the game as we speak. Talk about rate of change. We'll never communicate or collaborate in the same ways again. It's nauseatingly cliche, but it's true: Change is the new normal.

After a recent eye-opening conversation with Tom Hood (and really, all conversations with Tom are eye-opening), I'm equally intriqued by folks who refer to social media resources as "technologies." They're not, says Tom, any more than our cars or our computers are technologies.

There’s an old saying: Once technology becomes ubiquitous, it also becomes invisible. And that’s when it becomes really powerful. We don't think about the technology that powers our car's engine when we climb behind the wheel, do we? We don't think about how the computer works when we power up in the morning. We just know that they work, and that they allow us to do really cool things.

Back when horses and buggies were the main forms of transportation, cars were advanced technology. Not anymore. And why? Because we are natives of the automobile age. We've never known a world without them. They just are.

Digital natives -- the young folks who don't know what it's like to not be able to instantly connect to people and information -- look at things like social media and virtual worlds in much the same way. To them, it's not about technology. It's about living life.

As we try to keep pace with the extraordinary rate of change, we need to stop focusing on the technology and start thinking about what we can accomplish with it.

When in doubt, follow the money...

I still remember that quote from my Auditing class at Loyola College in 1981. Unfortunately it still applies today in all of the controversy about the AIG bailout. When you see the contributions by AIG and the scrambling by everyone to explain away this mess, it really starts to make me wonder (and worry).

Do you find it troubling that there were major AIG political contributionsto Obama ($130,000) and McCain ($59,499) and a total of $630,000 from AIG executives to politicians (According to ABCNEWS)? In the same article by ABC, they talk about an additional campaign contribution to the President of $23,000 by AIG and bring up the possibility that this could be from the first round of bailout funds?

One can make the case that this is very smart business - those contributions (say $700,000) produced over $ 170 billion in taxpayer money to AIG and written permission to pay huge bonuses to the people (AIG Financial Products division) who either created or sold the financial WMDs that destroyed our economy. Not a bad return on investment. But wait there is more...

Then we have Congress grilling the now embattled AIG CEO on national television, when the "bonus payments" were all approved and written into the stimulus bill. See this post titled Read the Bill: Stimulus Bill and Bonus Loopholes. There is still a debate as to who and when, but it is clear that the these bonuses were included in the Stimulus Bill

Apparently, many of our elected representatives did not even read the 1,100 pages of language that indebted all of us to trillions of dollars. I can't wait to see what other surprises show up from this hurried "must pass" legislation. And now we have yet more legislation trying to take back the first legislation as Charlie Rangel (accused of tax evasion himslef) introduces a tax law with a 90% tax rate directed at the AIG employees who took bonuses.

See the WSJ article titled Some Will Pay Back AIG Bonuses

See the actual AIG retention contractthat started this on the NYT's Deal Book by Andrew Ross Sorkin.

All I can say is that based on the money trails I am reading about, I am more concerned than ever about government and business getting tied together closer and closer through these bailouts. The chance of greed, corruption, and just plain incompetence has warning signs all over the place for me. Or as they say caveat emptor, let the buyer beware - in case you did not know it we are all "buyers" in this system since we are ultimately footing the bill. What do you think?

The words that Supreme Court Justice Louis Brandeis wrote about our broken financial system in 1913 ring true today, "Sunlight is said to be the best of disinfectants. Electric lights the most efficient policeman."

How can we as CPAs help bring more transparency into business and government which will begin the slowprocess of rebuilding trust again?As the most trusted advisers to business, what would you recommend?

 

Are we selling our souls on the way to recovery?

Something just doesn't smell right.

Congress all but demands changes in mark-to-market accounting from the Financial Accounting Standards Board, and in a matter of days, the FASB rushes through new guidance (with a 15-day comment period, no less) on how companies should value assets that are caught in an "inactive market."

It's not the fact that the FASB took action that stinks. After last week's hearings, that was all but given. It's not even the speed at which the changes are taking place that bothers me. Badly constructed regulation has been rushed onto the books before in the name of Something Has To Be Done. Anyone remember the Sarbanes-Oxley Act?

No, what really bothers me is this quote from FASB member Thomas Linsmeier:

"What we are voting on will hopefully elevate fair values to a more reasonable price so investors are more comfortable investing in the banking system."

In other words: To hell with what the market says. Let's value these assets at a price -- any price -- that will encourage people to invest money in them.

In my mind, accounting is all about transparency and accuracy, and those things are not subject to speculation. We don't just change the numbers because we don't like them.

But what lawmakers and regulators seem to be saying is this: We're willing to do anything to get people investing again.

Anything? Are you willing to cook the books? Sell your souls? Tell people that something is worth more than its market value? Because by insisting on these changes, that's what it sounds like you're doing.

Yes, I want the economy to recover quickly. Yes, I want investors to feel confident again. But I don't want those things at the expense of accounting principles. "Value" shouldn't be a subjective quality.