Category: CFO Folklore

2013 Audit Season: Joke #1


Sleeping AuditorI already wrote about subsequent-events analysis during audits in my post Ignorantly Insolent Bosses.  Payments received from customers in January and February prove the validity of sales invoices outstanding as of 12/31.  On the other hand, if you made a payment to a vendor on 01/07/13 for an invoice dated 12/08/12, which wasn't included into your accounts payable schedule – that's an error: both the liability and the related expense should've been recognized in 2012.  There are subsequent events tests for all accounting cycles – really useful, powerful, mandatory for any audit.  If done thoroughly, they can uncover all those overstated revenues and hidden costs that result in public companies' going out of business and their executives going to jail.

"If" is an operative word.  Here is an actual story that happened during the week of 02/25/2013.  An audit field work was under way at ABC International, Inc.  A mid-size NYC CPA firm has been servicing this company for a few years, covering all corporate taxation needs as well as providing their independent opinion on the annual financial statements, which the company submits to their lenders, insurance underwriters, major suppliers, and other users.  ABC has a very strong CFO and the auditors never find anything out of order in the company's books, records, and statements. 

That's great, except that the audit quality should not be affected by the previous experience.  Yet, this time around the CFO noticed that the audit manager seemed a bit lax - the test selections were smaller, there were less questions and supporting documentation requests.  She was pleased: it shortened the exam time and also signified the auditors' confidence in her own work.  Of course, there is confidence and there is negligence. 

As soon as the audit started, the CFO asked her staff accountant to generate January and February schedules of sales, receipts, vouchers, and payments (the subsequent events), which were provided to the auditors with a copy to her.  When the CFO reviewed the information to make sure that everything was in order, she has realized that the payment journal was drawn for the beginning of 2012 instead of 2013 (people do have a tendency of clicking keys without thinking).

The CFO immediately generated correct schedules and was about to email them to the audit manager, when she stopped herself.  Why the hell didn't he notice it?  Did he even looked at it?  She decided not to do anything for the moment and see what would happen.

A couple of days later, the field work was completed.  Two weeks later the CPA firm prepared the draft of their independent opinion and the footnotes, which were sent to the CFO for review (she told me she's received it today).  Nobody ever mentioned the year old supporting data.  Nobody caught it: not the auditing staff, or the manager, or the firm's quality control department.  What quality?  Please, don't make me laugh!                

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CFO Folklore: Ignorantly Insolent Bosses

CFO Folklore: Ignorantly Insolent Bosses


Panda AccountantIn accounting and auditing, first two months of a fiscal year (for most, January and February) make up a period of Subsequent Events, which are directly related to a company's previous year's Financial Statements.  Goods listed as 12/31 inventory are (hopefully) selling; last year receivalbes are being collected; cash being disbursed for unpaid expenses that comprised your year-end payables and accruals.  Financial auditors specifically target these post-12/31 sales, receipts, and payments to test the accuracy of the Financial Statements.  

Business owners, most of them lacking formal accounting knowledge, are especially confused about the expenses: they see payments being made now for the last year's interests, services, and commissions, and it worries them that somehow the current period's profitability will be affected.  Never mind that every year you explain to them that these items have been already recognized as expenses in the previous fiscal period through payables and accruals, and, therefore, impact only current cash flow, not the operational performance.  Even the ones who don't ignore your explanations and, furthermore, remember some of the terminology you've used, can't help but be a little disconcerted.

So, let's say last week (a week of 02/11) you have approved a $75K commission payment due to a procurement agent for the fourth quarter of 2012.  It requires a second signature – your boss's.  Now, she sees the check and your approval.  She knows your qualifications and what you've done for her company.  Before meeting you, she didn't know anything about accounting and finance at all, but she has learned a great deal from you.  Yet, she is a Business Owner – someone who is not capable of making an effort to overcome her impulses.  The strength of the "I-pay-you" sentiment in her subconsciousness is empowering.

So, she comes to your office, announces the topic ("This commission check") and tries to formulate the question.  First, she mumbles something about "the last year's income," and then the light bulb comes on in her head and she asks, "Was the expense accrued?"

Your mind is very fast and in a fraction of a second a swarm of neurotic, childish thoughts storms through your head: "Are you fucking joking me?  This is from someone who had no concept of revenue and costs recognition?  From someone who like a fucking bookie recorded everything when cash exchanged hands?  You, bitch, didn't have proper records, reports, financial statements!  Your tax returns were made up!  Did you forget that the bank demanded you hire a CFO before they gave you the credit line?  Now, everyone gets weekly, monthly, quarterly, annual reports and statements, thanks to ME!  I pass audits and bank exams without anybody finding a single error or omission!  How dare you!!!"

But you have two post-graduate degrees, 20 years of business experience, a book on CFO's functionality, 10 years of age, and a lifetime of hard knocks over this privileged pixie financed by her husband.  So, you look her straight in the eyes and calmly, almost jokingly, say, "Are you checking on my work?  Accruals and prepaids is what I do.  This was a 2012 expense and, in accordance with the Generally Accepted Accounting Principles, it was recognized as such."

Look, the truth is you should not get upset at your bosses for who they are.  "…Forgive them, for they know not what they do," and all that.  I always say, they are like spoiled and unruly children, who cannot control themselves.  And as long as you need the salary, you have to continue swallowing their shit pills. 

I wish I could stop taking incidents like that personally.  People with my intellect, background, knowledge, and experience – professional, psychological, cultural – should just brush it off.  Yet again, if I was able to do it, I wouldn't have had this blog.

What to Expect from a Boss with a Peter Pan Syndrome


Oh, Peter Pan, the “boy who wouldn’t grow up,” he is so endearing in his never-ending boyishness.  He doesn’t care about the adult world problems.  His disregard for the laws of physical and emotional gravity allows him to fly without wings and fight pirates with an uncommon valor; but it also propels him out of the windows of the heart-broken girls: Wendy, and her mother Mary Darling before her, and who knows how many more.  Really, he belongs in his Neverland.

Yet, Peter Pans live among us.  You meet them every day: in your office, on your business trips, in stores and public transportation; you pass them on the street; they may be related to you and you see them across the dinner table.  They don’t soar in the air or prance with swords (well, maybe some of them do).  Nevertheless, their true nature is that of unabashedly cocky young boys ready for adventures.  

Permit me to clarify.  We are not talking about physical appearance here.  People who look 10-15 years yonger than their age, whether because of their genetic make up or because they treat their bodies right, can be very grown up.  I am not talking about those who take part in what society perceives to be “young” activities either.  I actually think that people who never stop going to rock concerts and enjoy parasailing in their eighties are on a higher plane of sophistication.  No, the subject matter here is the psychological immaturity; the inability to accept the reality of the adult world.       

The Peter Pan Syndrome is not officially recognized by the Diagnostic Manual of Mental Disorders.  It’s considered to be a “pop-psychology” term.  In other words, it’s okay to use it in cultural and social context, but no doctor will get reimbursement by insurance for treating this affliction – there is no code for it.  I frequently wonder whether it is a ploy of the closeted Peter Pans of psychology.

Peter Pan of J.M. Barrie‘s story can be recognized right away.  The book illustrators even gave him pointy ears, hinting that he is not quite a regular human.  But in every-day life they are hidden inside people who appear to be all grown up.  Yet, there are certain telltale signs one can pick up right away.   It could be a sports car too small for the owner’s body, or a tan in the middle of winter, or a jacket a size too small for a middle-aged banker, a hipster watch on a wrist of a 60-year-old lawyer, a second wife 25 years younger, a newborn child at 57.  I’m sure you know what I am talking about.  

However, at the end of the day, it’s the personality traits that betray the Peter Pan’s tendencies – the propensity for undisciplined, uncontrolled, irrational, irresponsible, disorderly, intoxicated behavior.  But, like with all archetypes, the negative trends coexist with positive potential that manifests itself as a free spirit, unbound instinct, potential for growth, hope for the future, untamed forward drive.

It’s one thing to handle Peter Pans socially and even privately.  It’s a completely different matter when you are confronted with men-boys in the work place, especially if one of them is your boss.  You have to be very careful: bosses like that think that they are invincible; they believe that they will come out on top in any situation.  They take big risks and trust they can get away with anything.  If they are lucky, their endeavors may lead the company to brilliant successes.  But many of them get smacked against the cruel wall of reality, crash and burn.

One of the most prominent symptoms of the Peter Pan complex is absolute inability to take No for an answer.  Many private-business CFOs deal with the childish behavior of their bosses and can fill in the blanks in this conversation:

CEO:    I want to…

CFO:    We cannot do this…

CEO:    Why not? (like a 10-year-old)

CFO:    We don’t have…  And it’s against…  We will jeopardize…

CEO:    I want to do it anyway… (like a 5-year-old)

It’s very difficult to find the right way of dealing with an intelligent and talented person, who looks like an adult, but frequently falls into the pits of the child-like stubbornness.  The only thing you can do is to be constantly aware of the reality of the syndrome.  Hope for the best, but prepare for the worst.

Let me leave you with this popular culture example.  Mark
Zuckerberg, a student at Harvard University, threw a tantrum like a
3-year-old boy in a sandbox, when his girlfriend dumped him – he called
her mean names and told her secrets to the entire nursery school.  Then he ran out and slammed the door behind him as hard as he could. 
The result of it was the creation of a network that pervaded the lives of
hundreds of millions of people all around the world and made him the
youngest billionaire.  Now, he will never grow up – he never got a
chance to face the real world.  He went from childhood into a fantasy
land.  He boasts that he wears the same thing every day.  So, does Peter
Pan – the protective uniform of a boy who will never grow up.

The Boss Who “Cares” aka The Hypocritical Bastard


ClassicStyleHypocrisyMeterHey you, hard-working people, regardless of your profession, stature, or rank! I am talking to all of you!  Beware of "NICE" BOSSES!

You know the type – he always smiles at you, tells you jokes (and laughs loudly himself), asks about your family (sometimes even during first interviews), says "thank you" at the end of the day, declares that he wants everyone who works for him to be happy, claims to keep your opinion in high regard.  

This is all BULLSHIT!!!  This boss is a liar and a hypocrite!  Don't think for a second that because he acts like that on the surface, he really cares and will do right by you in terms of things that really matter, i.e. create material (compensation, benefits, working space) and moral (respect, recognition) stimuli for you to work harder and feel satisfied with your own performance!  

In fact, this faux exterior should be taken as a first sign of a shitty character.  There is an old proverb that applies perfectly here: "He makes a very soft bed that will be hard to sleep in."  The only person such a boss cares about is himself!  At the end of the day, all that huggy, phony warmth is just for him and him alone.  And because people like that lie to themselves the same way they lie to others, he goes home honestly believing that he is a swell guy and a wonderful boss.  He simultaneously pats himself in the back and jerks himself off.

 But when it comes to serious, important staff…  This is the guy who will fight you tooth and nail for every penny of raise or bonus you want to give your direct subordinates at the end of the year.  It doesn't matter to him that you only want to reward those who applied themselves the hardest, grew, learned, developed, and that you keep it all within the budget.  He'd rather double his own withholdings (for being so wonderful!) than reinforce the merit.  In fact, he will say, "Didn't we pay for her plane tickets when she went to her grandmother's funeral?"  Yes, we did – you suggested it to  be "nice."  So, now you think that was in lieu of the annual performance bonus?

And this is the guy who will reply to every great proposal from the members of his executive team, writing the exclamation-point emails: "Thank you!" "Great idea!" "Brilliant!" But he will never green-light the actual implementations.  You will see the mean gleam in his eyes every time the life proves you right or someone on the outside of the business confirms that you understand it much better than he does.  If that happens, he will enter a crazy cycle, competing with you all the time, even though he is the boss and, therefore, already won by default. 

I believe that the best working environments are created not by cuddly fakeness, but by indiscriminate fairness, accommodation of professional growth, and respect of achievements (the principles I myself exercise).  If that's impossible to have, I prefer an honest brute instead of a "nice" hypocritical bastard.  In this economy (or, as I call it "new reality") only a few of us get lucky and find "better" jobs.  The rest must tolerate whatever hateful things they are forced to experience.  And that's Ok (there is no such a thing as a "perfect" job anyway), as long as you face the reality with the full understanding of the situation and don't get fooled by appearances. 

Quote of the Week: The Accounting Blues


Images-2The Frustrated CFO's Preface:

From time to time I feel a need to come back to the discussion of an emotional burden carried by the accountants who find themselves in the unfortunate position of recognizing and reporting business losses.  And I feel absolutely justified doing so, because it is one of the most painful professional experiences.  Moreover, it is a reality many small-business CFOs and Controllers have to face with a persistent regularity.  Less than three months ago, for example, I wrote about the effect of losses on bosses (upon closing of the second quarter by the companies with a calendar fiscal year).  Nobody ever mentions how hard it is for us to be the messengers of news that may translate into budget cuts, layoffs, credit line recalls, and possible termination of business.  So, I feel obligated to talk about it.

Imagine my surprise, when I discovered a depiction of the familiar sentiments in a Booker Prize winning novel about one woman's wasted life – Margaret Atwood's The Blind Assassin.  I don't know whether Ms. Atwood is acquainted with somebody who shared their experiences with her, or she is that good at getting inside her characters' heads and imagining how it would feel to someone in real life.  What matters is that it's very accurate.  So, here it is:

"Two and two made four…  But what if you didn't have two and two?  Then things wouldn't add up.  And they didn't add up, I couldn't get them to; I couldn't get the red numbers in the… books to turn black.  This worried me horribly: it was as if it were my own personal fault.  When I closed my eyes at night I could see the numbers on the page before me, laid out in rows on my square oak desk… – those rows of red numbers like so many mechanical caterpillars, munching away at what was left of the money.  When what you could manage to sell a thing for was less than what it paid you to make it… – this was how the numbers behaved.  It was bad behaviour – without love, without justice, without mercy – but what could you expect?  The numbers were only numbers.  They had no choice in the matter."

                                                             Anchor Books edition, 2000, p. 204