Category: External Network

Audit Season Woes


As a corporate controller, CFO, and consultant, I've been on auditees' side of the table for the past 20 years. Yet, I still remember the gratifying excitement of coming to a company as an auditor and testing the depth of my expert knowledge in an unfamiliar territory, quickly absorbing the business's specifics and immediately identifying the scope of testing. Well, Ok, I've been called a "show-off" and "know-it-all" many times, so forget me. Over the years, there were other public accounting professionals (not many, but some), who impressed me with their knowledge and sharpness, but it doesn't happen anymore.

I've been complaining about the decline of the quality of work across all jobs, from customer service representatives on the phone to the cardiologists in fancy hospitals, for years. But somehow I still get very frustrated when I encounter the same trend in my own profession. I cannot even explain why. After all, I am very conscious of the managerial accountants' limitations. The main reason for writing "CFO Techniques" was the desire to fill their knowledge gaps. Just a few weeks ago I wrote about The Unimaginable Abyss of Accounting Ignorance in the small-business environment. So, I should not be surprised when I am faced with the same situation while dealing with financial auditors. Nevertheless, it still gets me.

It's audit season, so in the past couple of weeks I've been helping my client (a young company) to go through their very first independent year-end examination of books and records. It's conducted by a small CPA firm hired before my consulting engagement commenced.

Under my guidance, the client's accountants did what I always advise to do in preparation for an audit (see Chapter 30, What Guarantees Fast and Painless Audit, in "CFO Techniques"), i.e. they loaded the appointed auditor in advance with statements and schedules of data required to make all testing decisions. He definitely had time to prepare well.

The client is an importer of raw materials. So, the revenue/cost recognition and cut-off tests are very important. Accordingly, the auditor gives a list of sales and purchases he wants to test. We provide all supporting documents to verify the propriety and accuracy of each transaction. After a little while the auditor knocks on my door with a bunch of papers in his hands. "How do I know," he asks timidly, "if these invoices have correct dates?"

Inside my head I scream, "Are you fucking kidding me?" But this is not about my frustration, this is about my client. So, I calmly explain that he needs to compare the recording dates with the source documents proving the product's ownership transfer as defined by Incoterms. I go further and demonstrate with one of the selected items: this sales order states CIF (cost, insurance, freight), which means that the customer owns the product as soon as it's loaded on the transport; hence, your source document is the Bill of Lading (BL) attached right here to the Commercial Invoice and the Packing List; the BL's date is the sale's date.

He soon comes back with another file and he is very apologetic, "I am sorry, could you explain this to me again? I never heard of those… terms… before. What did you call them?" I help him out, "Incoterms?"

Will somebody, please, explain to me, since when it's Ok for an auditor, who is responsible to lenders, investors, and other outside users to verify the correctness of books and records, to come to the client without the full knowledge required to perform his tasks? Why is he not even embarrassed to admit that? Why the hell in 2012 it did not occur to him to get his ass onto the world wide web, as soon as he heard the word "Incoterms" from me, and study them?

I guess, that would be too much to ask. Hey, he didn't even know what a "metric ton" was and asked me for the ton-to-pound conversion ratio instead of finding it by himself. He continued coming over, I continued providing him with definitions and rules. At some point he got so comfortable with this teacher-student setup, he even asked my advice on how to "test for prepaid expenses." Seriously? Did he forget that I was their from the client's side, essentially being audited?

And here I have to bring up my book again. There is Chapter 29 in "CFO Techniques" called Choose Your Auditors Wisely… Dear business owners, CEOs, CFOs, and controllers, please, read it if you want to avoid paying $25,000 – $100,000 (average range for small businesses) for low-quality accounting services.

What If You Don’t Look the Part?


ImagesAh, December!  The month of office parties and corporate gatherings.  Small or large, every company feels obligated to do something: sandwiches from a nearby deli with soda in plastic cups, or formal cocktails and fancy dinners – whatever fits the budget (frequently, way over budget).

On Monday I had to take part in my client's festivities.  The company is small, but has a lot of external relations (bankers, financiers, big-time suppliers, shippers, brokers, lawyers, consultants).  So, the gathering turned out to be pretty significant.  As their acting CFO I am viewed as an insider and, therefore, was placed at the head of the "finance and legal" table.  Funny!  Other tables – operations, logistics, etc. were vividly mixed-gendered.  At my table – I was the only woman.

"But no matter, no matter!"  As all of us – females of corporate finance, I've been working in the predominantly testosterone environment my entire career.  I know how men operate and expect them eventually, after obligatory discussions of each other's success, politics, economy, and the stock market, to fall into a football patter.  And even though I myself find basketball and tennis far more exciting (and, as my readers know, prefer arts altogether), I am ready.  It's not really that difficult – here, in NYC, they are predominantly Giants' fans.  All it takes is to remember few key names and events, and they feel like you are "one of the boys." 

So, here we are, in the third hour of the event, with enough liquor in all of them to knock a team of stevedores to the ground (ever since the martini lunches have become their industry's long-gone past, the thirsty bankers make up for them in the evenings), when the Giants sneak their way into the conversation.  Only this time around, there is a twist – a politely contained and quiet tiff erupts over Eli Manning. 

You see, there is this guy, second from me on the left, in his early sixties, who looks like the Nazi who got the scepter's head burnt into his palm in "Raiders of the Lost Ark."  Only 30 minutes ago he said that the best presidential candidate right now was Michele Bachmann, which made me bit my tongue so hard to prevent a spontaneous response, I bled a little in my mouth.  Now he is arguing with other neighboring boys, telling them how much he hates Eli, and the way he sits on the side, and his smile, and his hat, etc., etc.  The fact that he is one of the only three Giants' players ever to be named a Super Bowl MVP apparently means nothing.

Let me tell you, I don't really give a rat's ass about either of the Manning brothers.  It's the underlying principle that's important to me.  So, I look the man in the eyes through his round glasses and say, "Many conservative men don't like Eli Manning, because he looks like a goofy high-schooler."  "Yes, and that stupid grin of his," says the man.  And I say, "But that look, and that grin, and that hat – they have nothing to do with his performance on the field."  The conversation ended right then and there.

More than a year ago, I finished my post "He Looks Like an Accountant…" by saying that young crowd at rock concerts don't believe that I am a career CFO.  The truth is that, unless I am introduced as one, nobody ever guesses it.  Moreover, there is always an element of surprise in people's reaction, when they learn about my profession.  It doesn't matter that I am very good at it and have a book on the subject coming out, I don't come off as "corporate finance," at least not by American standards.  I am not tall, not skinny; I don't have the fake gloss all over me.  And that crazy hair I could never tame!  I am acutely aware of this discrepancy with people's expectations.  That's why "CFO Techniques" doesn't have my picture on the back cover – I don't want to confuse people.

CFO Folklore: Audit Joke of the Month


Images-2It's time for CFOs to get in touch with their auditors and schedule preliminary work, field examinations, and so on and so forth.  Some diligently proactive CFOs send auditors estimates of their receivables, payables, and inventory balances even before the end of the year.

One such CFO receives a phone call from a middle-level auditor assigned by the CFO's primary contact John, the partner of the CPA firm, to do the preparatory legwork.

"Hi, my name is Luis, I work for John."

"Hi, Luis, nice to meet you over the phone."

"Based on your inventory levels John has decided that we must do a physical observation test at least at one location."

"That's fine.  Did you, guys, decide which one?"

"It's the one with the highest value of the stored product.  Hold on.  Let me see the name on your schedule…"

"Don't bother.  It's the Hudson Tank in Bayonne, New Jersey, near the port."

"That's right."

"Ok, I will make arrangements for the facility's management to escort you.  We have no activities scheduled for December 30th or 31st, so you can take the gauges' readings on the 30th as your year-end control."

"Well, will they be able to take the product out?"

CFO is silent for a few second, digesting the absurdity of the question and summoning her will power to prevent herself from laughing madly into the receiver.

"Luis, the product is a LIQUID chemical.  THAT'S WHY IT'S IN THE TANK.  The only way it can be taken out is if it's pumped out into another tank, or poured out onto the ground, or into the river, if you prefer that."

"So, I will not be able to actually see and count it?"

"Well, Luis, if you are really nice to the ladies who work there and bring them some Champagne for the New Year's celebration, they may let you climb onto the tank and dive in.  But I am warning you, Luis, it's over 40 feet tall.  Are you a good diver?"

 

Scenes from a Business Lunch, or the Obnoxious Rudeness of Business Owners


Restaurant-TableSpeaking of lunches (and I swear this is my last holiday post of the year)…

Because there are so many corporate holiday events in December, many business people from all over the country and overseas come to New York City during the month.  Customers, suppliers, vendors, associates, partners, and other relations visit their customers, clients, etc.  So, on top of the parties, you've got lunches with out-of-towners. This is a perfect opportunity to observe the business-owners' behavior in a "casual" group setting (as opposed to conference rooms and other natural habitats).

For many visitors this is also a good occasion for combining business and pleasure (after all, NYC is still #6 most favored tourist city in the world and #1 nation-wide) and quite a few bring their spouses along.  Some are actually in business with their spouses.

At the most recent lunch outing of this kind my guests were a manufacturing business owner by himself, another business owner with a wife, an alpha-female head of a consulting group, and a husband and wife attorneys sharing a corporate legal practice. Fun bunch!  Don't worry kids, it's only going to get worse!

The manufacturer asked for a coke and downed it really fast; then had it refilled several times throughout the meal.  This, naturally, resulted in a fast accumulation of a lot of gas in his stomach, which he unceremoniously belched out every 10 minutes, or so.  It was obviously a habitual occurrence, because he did not even bother to apologize.  It's amazing, how we learned to hide our emotions in "business" situations – everyone pretended not to notice it, even though once in a while one could catch a hint of a smirk or disgust (depending on the personality) playing on the lips of other guests.

[Side note: This reminds me of another experience in my arsenal of wonderful memories.  Early in my career I worked for a company, whose owner, in my mind, will forever carry a title of The Farting Boss.  He was middle-aged, but had a younger second wife and wanted to loose weight by drinking glass after glass of Slim Fast.  This made him very gassy.  The man mastered the skill of silent farting, but the smell was literally unbearable.  Imagine my situation – we sat in the same room.  Good times!]

The lady consultant first tried her sales pitch on every guest around the table, but quickly lost her enthusiasm, when she realized that nobody is interested in her services, except for me.  Since my company already had a contract with her, she did not see a reason to waste anymore time on us and turned her attention to the Blackberry, answering emails between bites and white-wine sips.

The married businessman first attacked his wife in a very loud whisper (it could be heard even at the neighboring tables) for wearing shoes with heels.  This apparently slowed down his purposefully brisk gait that went well, I am sure, with his aggressive mannerisms.  After the woman's eyes welled up with tears he abandoned her to fight it back on her own and observed the rest of the battlefield in front of him.  Dismissing the burping guy and all females as inferior creatures, he concentrated his self-affirmation efforts on the attorney sitting across the table from him.

They went at each other like two roosters in a Filipino cockpit.  "Have you read this?"  "Do you know that guy?"  "I bought Apple at $25 and just sold it at $375." "I am keeping mine – it will be $500 a share in a year."  "I closed that famous private equity deal this year." "I brought this much venture capital to my business."  "I am opening new factory in China."  "We have a law office in Hong Kong!"

God!  I contemplated the scene thinking, "The things we must tolerate to earn a living!"    

CFO Folklore: An Insult of the Month


-1After a long period of solicitation, due diligence, term sheet amendments, and credit agreement negotiations, a company finally closed a new multi-million dollar credit line with a major national bank. Now, it's time to build working relationships with different departments: the CFO is busy establishing communication channels with the treasury services, trade finance, foreign exchange, collateral control, and so on, and so forth. There are conference calls, meetings, lunches.

This is an introductory period for both sides – a short lull between the stormy deal-making and the times of daily grind that lie ahead. There is not much business yet to discuss, so the conversations, especially during lunches, turn to probing each other's backgrounds and chatting about general topics.

During one such first-meet lunch with yet another banker, the CFO, a person of broad interests, talks about this and that, displaying familiarity with various subjects.

Banker (in a very friendly, non-offensive, even appreciative tone): You know a little about everything, don't you?

CFO (waiting for the second part of the expression, but none is coming; so she takes offence): Well, that would make me very superficial, even shallow. I assure you that there are a few areas of knowledge within and outside my professional scope, in which I can claim in-depth expertise.

They look at each other silently for a moment than move onto a discussion of the bank's operational features, both hiding their own grudges.

The Frustrated CFO's situational analysis:

My personal experience of dealing with American bankers throughout my entire career is that the majority of them are not overly bright. I assure you that I am not saying this out of disrespect – it's just a fact of life. The European banking is altogether a different matter. Overseas, the banks are smaller and the profession itself is still considered to be a prestigious occupation, even if you don't deal with investments and make million-dollar bonuses. Some of the European bankers I know graduated at the top of their classes and were recruited right out of the business schools. Ours – they are mostly average.

That's why I think that at the crucial moment of a split-second decision, the CFO went the wrong way. These mental "forks in the road" present themselves in our minds all day long. Sometimes we make right decisions, and sometimes (most of the times, for some) we don't. Looking at the situation from the outside, I gather that the banker did not mean to be brash. She was just limited. Most likely she only remembered the first part of the frequently paraphrased and transformed saying – know a little about everything and a lot about something, and used it, inappropriately, to complement the CFO's erudition. You know, it's like one of those bushisms, "Fool me once – shame on you, fool me – you can't get fooled again." You cannot take that kind of stuff seriously.