Tag Archives: auditing

MPA Council and the ICAEW: The future of global auditing

icaewIn late February, Program Director Jim Franklin and Department Chair Lillian Mills were able to have some members of the Institute of Chartered Accountants of England and Whales (ICAEW), one of the leading institutions publishing articles about the profession internationally, to come and speak about the future of global auditing with members of MPA Council.

We were asked the question “What challenges do you think the auditing profession currently faces?” and “If you lived on a small island where all the companies did not have to have their financial statements audited because everyone trusted each other. If you wanted to open the island to foreign-based companies, what protections would you put in place?”

The resulting discussion I felt was fascinating, as it combined the knowledge I’ve developed in both my auditing and complexity theory categories. I feel these two questions are extremely related, and here’s why:

Let’s say we are on the small island described above. There is no need for audited financial statements because there is trust between the companies and shareholders. We face the decision of requiring audited financial statements in the face of foreign companies wanting to sell shares on our island because we do not have the same trust in these companies. Auditors would become in demand because of a lack of trust between company management and investors.

If shareholders feel they have been presented fraudulent financial statements, they will blame the auditors for not catching it. Even though it was the company that committed the fraud, the highly-trained auditors did everything they were supposed to do, a disproportional amount of blame falls upon the auditors.

This blame falls on the auditors because most people don’t fully understand the role of the auditors and the work they do. They just expect them to catch all and any fraud. This is what we discuss in auditing class as the expectations gap. Because people don’t understand the training and qualifications we have, and the limited nature of our job, we can only do so much to prevent fraud. Companies preparing the financial statements are the ones ultimately responsible.

Also, auditors are held accountable for the effectiveness of accounting standards. The problem with this is that the world is coming more and more complex, and companies are quickly adapting their operations in order to survive in the complex world. Frequently, we can’t keep up in developing accounting standards to reflect these new and innovative ways of doing business. Technically, a company’s financial statements could be following GAAP, but the core economics of the transactions are misrepresented.

Because of this expectation gap and lack of trust that is continually strengthened by corporate fraud, a a decent amount of people are mistrusting auditors for “not doing our job.”

The answer seems to be to close the expectations gap and to increase people’s trust in our services. The million dollar question, though, is how in the world can we do that?

Melissa Takes Boston: Part 4

Hello everyone!

I am back with one last installment about my internship experiences this semester. McCombs provides  its students with a well-rounded business education and as I reflect on my internship, I realize that I used far more than just what I learned in my accounting classes. I thought I would share with you all how I used the McCombs core curriculum to succeed at my audit internship.

Finance: As as auditor, you will be exposed to a variety of financial instruments for which you need to audit and a background in finance is very helpful. I couldn’t have audited equity if I didn’t first understand present value!

Operations management: Throughout the course of the audit, you are exposed to the entirety of the business. As you audit certain areas such as inventory, you will identify fluxes (variances) that will need explanations. With my knowledge of operations management, I understood the nature of a supply chain (obtaining supplies, manufacturing, distributing, etc.) and thus I was able to dive deep into the numbers and understand what exactly was happening behind the scenes.

MIS: The MIS department will tell you this, and it’s definitely true- MIS is EVERYWHERE! Whether its the implementation of a new accounting system or database, or RFID tagging on your client’s inventory, you are definitely going to be exposed to a variety of information systems as an auditor.

Business communications: My BA324 experience is certainly a cliche one- I was a terrible public speaker (or as my professor so gracefully described it, an “inexperienced public speaker”) and the presentations and exercises in BA324 were crucial to my success in this realm of the business world. As an auditor,  you will need to be able to speak professionally with the client.

Management: As you move up in the public accounting world, or even if you leave and work in industry, eventually you are going to be in charge of some of your colleagues. And even before that, you are going to be the one being managed. This being said, the concepts that we are taught in management are always going to surround us in the business world.

Marketing: One thing that stuck with me from marketing classes, and something that I try to use in my career, is that you have to know how to market yourself. This trait did not apply so explicitly to my actual internship, but moreso the recruiting process that led up to it. I had to know how to showcase my strengths as I recruited so that my potential employers knew that I would be an asset to their firm.

I just think that McCombs is great and I hope you all agree! Remember this week that you can donate for BBA Legacy (even though we are MPA students- some of us are BBA too!)

The Lance Armstrong Scandal from an Accounting Perspective

The US Anti-Doping Agency (USADA) announced on Friday that it would be stripping Lance Armstrong’s 7 Tour de France titles from him, as well as permanently banning him from competitive cycling. I think this scandal is important to talk about in that it relates to our role as accountants.

You might be reading this thinking, “Does this scandal even relate to accounting?” The answer is yes, it absolutely does. The scandal in this issue is in part the results of the investigation, but mostly in how the investigation was conducted. The USADA used a number of procedures that were at best questionable and at most inherently illegal. We as accountants can learn from this scandal due to the fact that our role in society is very similar to that of the USADA. The USADA monitors US racers to ensure that bike races are fair and perfectly competitive. Auditors monitor organizations to ensure that the competition for-profits and shareholders are also fair and perfectly competitive. The difference between auditors and the USADA is what society expects of us and how we are socially reprimanded for unfair or unethical procedures.

This last statement may be a little strong, but let me frame it how I am seeing it. Armstrong was a retired cyclist when the case was brought against him. Any of the rulings wouldn’t make current cycling races fairer for riders. The USADA also brought charges against Armstrong that are over 17 years old, even though the organization has an 8 year limitation on these types of matters. The USADA seems to be changing its rules to get the results and publicity it wants while it preaches that everyone should be held to the same rules. According to U.S. District Judge Sam Sparks who oversaw the case against Armstrong, “USADA’s conduct raises serious questions about whether its real interest in charging Armstrong is to combat doping, or if it is acting according to less noble motives, such as politics or publicity.”

Now let’s pretend that instead of a cycling investigation, this was a public company’s audit. If something this negative was said by a U.S. District Judge in relation to how an audit procedure was conducted, the public would be outraged. There would be lawsuits and huge damages to be paid.  The accounting firm’s reputation may even be permanently tarnished. But because the USADA doesn’t affect the majority of people directly, most don’t care enough to hold the “watchdog” accountable for unethical actions.

As accountants, what we can learn from this scandal is that the most important thing is to be fair and objective. It is essential to follow proper and standard procedures and to not cater to things like publicity and politics. We are watchdogs, not bullies. We need to make sure that every action we take and every decision we make is done to ensure business is a fair game to be won, and companies that exceed our expectations are not punished for playing by the rules.

Update: CPA Exam studying


Hello everyone,

Just wanted to give a quick update on my process of studying for the CPA exam.  Last time I mentioned this, I was planning on taking the exam at the end of February.  Due to my lack of commitment to studying, I had to move my date and I am now taking it in two weeks.  This is my first section of the CPA exam and I will admit, I’m pretty nervous.

I spent most of my spring break studying for this exam so now if I don’t keep up with it, I keep reminding myself that I wasted my spring break then.  So far I am about half way studying with this section and definitely need to pick up the pace.

The problem I have been having is that now that classes are back in session, I tend to worry more about my homework than my CPA studying.  That is good because my classwork is “due” first, but then again, I cannot neglect my studying.  I also started a new class this half of the semester, which has added to my workload.  Nonetheless, I need to get back on track with my studying so that I don’t waste all the time I’ve studied by not being prepared.

My advice, then, is that when you start studying for the CPA exam, you need to be committed to it and follow a schedule. Otherwise, it will fall by the wayside and will seem to always be a concern on your shoulders.  I will keep you all updated on my studying and exam process as it continues.

On another topic other than CPA exam studying, the new class I started this half of the semester has been good so far.  It is called Studies in Auditing and since I will be going into auditing after graduation, I hope the class will be very useful.  So far (in the two classes we’ve had), I’ve definitely learned more about auditing and the profession.  I look forward to our discussions about technical topics as well as current issues in the auditing profession as it is all quite interesting to me.

Please leave comments or questions about the CPA exam, my new auditing class, or anything else you would like to know!

Back in the Swing

AICPA ThisWayToCPA logoHello everyone. I hope you all enjoyed your holiday season and are like me, getting back into the swing of things.  Today was the first day of classes and it seemed to go well for everyone.  This semester for me will be filled with classes, homework, and the all important  CPA exam preparation.

I signed up for an online course and plan to take my first section within the next 2 months.  I applied for the exam over break and am still waiting for approval to schedule my exam.  There are plenty of instructions and information on the CPA exam on the NASBA website as well as the AICPA website.  Please post comments if you have any question about the process.

The classes I’m taking this semester include ethics (which is a required course for the CPA exam in some states including Texas), business communication and corporate governance.  These are mostly electives that I have chosen because I feel they will best help me in my future, on the exam, and in my career.  I also am taking two accounting electives that are more audit focused.

Please post comments of any questions you may have about the CPA exam or courses you can take as an MPA, both core and elective courses.  Thanks!