Last week I was lucky enough to get to see Al Koch speak. He is very much involved in the restructuring of General Motors, and has been for the past year or so. He started out as an public accountant, so it is very interesting to see where he ended up.

To relate this all back to taking the CPA exam, Mr. Koch scored the highest cumulative score on the CPA exam back when he took it, winning the Elijah Watts Sells Award. Ten people get this award each year, but Mr. Koch won the gold prize for the CPA exam 1965.

So, while passing the CPA is the important thing, and no one really cares if you get a 76 or an 86, if you do happen to score ridiculously well, you get a whole lot of recognition for it.

Mr. Koch currently works for Alix Partners, a consulting firm that performs “Corporate Turnaround and Restructuring” which is a nice way of saying they help salvage what’s left of bankrupt companies.

His explanation of how the General Motors restructuring was handled was really fascinating. Apparently, they formed a new company, which I’ll call New GM, which took all of the good, useful assets away from Old GM

Old GM, is now left with all the bad, useless assets, and is now called Motors Liquidation. Mr. Koch’s role is now as CEO of Old GM. This involves environmental cleanup of properties, and trying to get rid of acres of factory floorspace.

In addition, Old GM owns some random assets like a 9 hole golf course in New Jersey, and some residential property that used to be contaminated (requiring GM to purchase it) but which is supposedly now safe to live on (so they’re selling those houses off at deep discounts.)

You can read more about this “garage sale” in this article from Bloomberg.

It’s kind of funny–Old GM is worth nothing. Even if it made a profit on selling these assets after the high costs of clean-up, any excess goes straight to the Treasury. Mr. Koch has made this clear to investors on the Old GM website and on public radio, etc. However, every time New GM announces something, like a new car model, the stock price of Old GM fluctuates.

So day traders, if you’re going to buy a stock, make sure you’re buying the right company!

Luckily, I passed FAR several months ago. However, for those of you getting ready to take FAR, the Roger CPA Review course blog has a free cpa review video of how to account for investments.

If you want to get a taste for what Roger CPA Review videos are like, or just get a quick review (it’s only a five-minute clip) of how to account for investments, you can see the video here.

In class today, we discussed the issue of “disclosure overload.” This is an issue that standard setters and financial statement users have been discussing for years (the article we discussed in class was written in 1994.) The basic problem is that there is so much information disclosed in financial reports that the footnotes begin to decrease in usefulness because the average user cannot possibly read and analyze the full report.

Today, we have information-disaggregation technology that we use every day to sort through blog posts and Amazon.com reviews that we could potentially apply to electronic versions of financial statements. Using these to format financial reports in a more use-able manner could make pulling useful information out of footnotes much easier without reducing the actual amount of disclosure.

This isn’t a serious, thought-out discussion, and I think we need to put more thought into how the actual disclosures might be reduced, but I thought it would be an interesting topic.

What electronic financial reports might look like if we used some social media tools to format them:

1. A “read more” option
   Financial disclosures could be summarized in an introductory paragraph, with key points mentioned in it, the way the first paragraph of a blog post or a news article summarizes the key points of the following article.
   Then, if a financial statement user is interested in reading further details about that disclosure, they can click a “read more” button to expand the text to read the full disclosure.
   This would allow users to scan all of the disclosure summaries on one page, and only view the expanded disclosure on those footnotes that promise interesting or unusual details.
2. A “like this” button
   All financial statement users could have the opportunity to select whether they found the disclosure more useful or less useful, similar to how users can rank reviews on Amazon.com. They might give it a rating out of five stars on whether the disclosure answered all of the questions they had about the topic.
   Then, other users could sort the footnotes by average user usefulness rating.
   Of course, having all users able to rank disclosures might not result in very relevant rankings. The company could always set up a system where only certain privileged users could have this option.
   Theoretically, like when users vote “like this” or “dislike this” for blog posts, this could generate some interesting information on which disclosures most users are reading, and whether the disclosures contain the information the users were looking for.
3. Tagged Disclosures
   Of course, XBRL is aiming towards this tagging thing for us, but it could make footnotes more useful if they were tagged with the financial statement line items they tied to. For example, if you’re interested in all disclosures that relate to operating expenses, a tagging system would allow you to quickly pull up all disclosures tagged as “operating expenses.”

I’m sure there are more social media tools that could theoretically make financial reports easier to use- can anyone think of some others?

Yay! 3 down! I hope I passed Audit on Saturday, but it was more difficult than I expected. On my first two sections of the CPA exam (FAR and REG) I didn’t really think that the testlets got harder as I progressed through the exam, which they’re supposed to if you do well on the prior testlet.

So, when I sat for AUD on Saturday, I kept track of how many questions I was unsure of. In my first testlet, I felt pretty shaky on 8 of the 30 questions. On the second testlet, I was unsure of 13 of the 30 questions. So there was a difference, and I noticed that the questions seemed to ask for more obscure details in the second section.

In the third testlet, I was unsure of about 11 of the 30 questions. I’m not sure how to rank that for difficulty. We seemed to go back to topics that I knew more about there, and that I think probably come up more in the daily tasks of your average auditor.

My methods of marking questions as unsure is hardly scientifically rigorous, and my samples of questions weren’t really big enough, but it was an interesting experience.

Another little statistic I compiled was my performance on the Wiley multiple choice questions that come as part of the Roger CPA Review package. When I get my AUD score, I can see how these raw statistics compare to my score on the actual CPA exam.

Note: The first time through, I did each problem set right after finishing the study unit on them. The second time, I did all of the problem sets in the span of one week right before I sat for AUD. As you can see, my scores improved quite a lot the second time, demonstrating how doing the practice questions themselves can help you learn.

I’ve been neglecting my Roger CPA Review materials over the last few weeks, but I’ll be taking AUD in less than 2 weeks, so it’s back to multiple choice questions!

It’s the time in the semester where the first big tests are happening, and the first big cases are due, so there is plenty to distract me. Roger’s review materials come with software that simulates taking the exam though, so I’ll be sitting down with that over the next two weeks to complete my preparations.

In other news, apparently auditors have been noticing an increase in fraud recently. This article from WebCPA has some troubling statistics about the increase in fraud over the last year.

The scary part is when you stop to wonder how much fraud they’re not even finding. For every fraudster that is caught, how many are out there still getting away with it?