I spent the month of May being very busy taking my last class of my Masters degree: Forensic Accounting.

It was a pretty cool class. We spent about 3 weeks in class, with 2 weeks devoted to speakers from all areas of the profession from lawyers to one-man forensic accounting firms to ex-FBI agents.

Outside of class, we spent our time working in teams to solve a “fraud.” I believe the backbone of the case is used at several universities in similar classes, but basically we are given some financial data from a small company, and must try to figure out if someone is committing fraud. We could write “emails” to the characters in the fraud, which our professor and her TA would reply to in character. We could also “hire” private investigators to “follow” the characters and let us know what they saw.

It was way easier than a real fraud, of course, but then, we only had a week and a half to get it figured out, haha.

We were also encouraged to note any internal control weaknesses and errors when writing our report. I had the pleasure of working with a girl who worked in industry for 6 years before doing her masters, who was amazing at finding every tiny error. I’m not sure if it was the industry experience that helped, or simply that she pays keen attention to detail.

I would like to take the CFE (certified fraud examiner) exam eventually, but the company I’ll be working for in the fall doesn’t have a forensic accounting team, making it unlikely I’d be able to collect the necessary experience.

So, it’s something to think about for the future, and I know that sometimes partners at smaller firms will do some forensic work for their clients, even though they don’t have a regular forensic team, so it can’t hurt to take the exam just in case. (And apparently it’s waaaay easier than the CPA exam!)

So, this basically has nothing to do with accounting, but I just spent the day reding “The Girl Who Played With Fire” by Steig Larsson (sequel to “The Girl With the Dragon Tattoo.” I loved both books, although I found they had slow bits in both.

“The Girl With the Dragon Tattoo” dealt with a lot of financial chicanery, and I was impressed by how Larsson could come up with convincing complex financial frauds. He worked in the news industry for many years, but not in the financial area like his main character (Blomkvist) does. I guess he picked up his instincts for financial scandal through strong interest in politics?

The book is fiction, but there are plenty of financial fraudsters operating out there who are just as devious as the villain in this novel. Sometimes I think the only way we find out about frauds is when someone on the inside informs, or when the fraud reaches the end of its natural life and collapses.

Does being a CPA qualify you to detect these schemes? Sometimes I wonder how many really smart people are committing fraud out there that never get caught. I hope that after some work experience, I’ll be able to answer yes to that question, but I suppose there’s a reason why we have specialized forensic accountants.

To write a book about a financial criminal, you need to be able to think like a criminal. As an auditor on the alert for fraud, you need to be aware of how fraud can be perpetrated. I’m not sure that the traditional accounting education really prepares anyone for that, so I suppose you’re supposed to pick it up mostly from experience?

A quick update: I got in touch with the website that published the article that I talked about in a previous post. This article talks about the misconceptions that accounting students have about the subject they are studying.

The article is titled “The Seven Deadly Myths of Accounting” and was written by Dr. Pava, who currently teaches at Yeshiva University in New York.

The 7 Myths:

1. “Learning accounting is like learning the rules of a game”
   It certainly seems like it from the way people who memorize every piece can still do well in class! I’ve never been fond of memorization, but I’ve found it’s possible to get by (and easier) if you understand the steps you’re performing. Of course, in the end, you’re still just learning the steps. It wasn’t until my first semester as a masters of accounting student that I had a chance to learn how to use financial statements.
2. “I’m good at math, so I’ll be good at accounting”
   I never suffered from this misconception. I always felt that accounting was a strange middle ground between math and English–my two strongest subjects. My first classes reminded me of solving word problems in Algebra class. But if I were good at math, I would have been an Economics major, so I never really thought that you had to be a math whiz to do accounting–therefore, only being good at math won’t make you a good accountant either!
3. “There is such a thing as the bottom line”
   This myth deals with the idea that net income is the only answer. My favorite line from this part is when Dr. Pava writes about his students reactions when he asks them to discuss the strengths and weaknesses of net income: ” . . . the question makes little sense to them. It is almost as meaningless as asking them to evaluate the benefits and limitations of “subtraction” as a mathematical operation.”

   Again, I didn’t have any idea of what might be good or bad about the bottom line on the income statements we learned to make until I took Financial Statement Analysis last semester. In that class, we looked at financial statements as an investor would, and analyzed which pieces of information that made up net income that we would consider or not consider when evaluating a firm’s financial performance.

   During our class discussion, one of the students argued that we had learned this as undergraduates, because our professors had talked about how managers could manipulate earnings. However, I think that we still didn’t learn how they could manipulate those earnings. And how are we supposed to uncover unethical accounting practices as auditors if the managers are so much more intimately familiar with how to manipulate earnings than we are?

4. “Accounting is a ‘thing apart.’ Understanding other disciplines is a waste of precious time”
   I can attest to this myth being promulgated by my undergraduate education. I like accounting, but I minored in Spanish and often found myself appreciating the break it gave me from memorizing rules (see Myth 1!). It was the only time I got a chance to read literature and poetry and practice analyzing anything in written essay form in the last 2 years of my BBA.

   However, I was told by my accounting advisers that my grades in Spanish classes didn’t really matter, because all anyone would care about in the future were my accounting grades! Not true!

   If there is something you’d like to study in addition to accounting, go for it! It will make you more interesting, it might make you better at writing, it will give you a perspective that is slightly different than your fellow accounting students. I can guarantee that at some point in your life, what you learn in another discipline will be useful to you in your accounting career.

5. “All decisions are based on the cost-benefit criterion. If not, they should be!”
   Now this one, I’m not sure I agree with. Dr. Pava argues that decisions should be thought of in terms of ethical criteria, citing the recent scandals as a result of unethical decision-making.

   There’s nothing wrong with the cost-benefit way of looking at decisions, as long as you make sure to factor ethics into your costs and benefits! Will your product make millions but also make thousands of children sick? The costs outweigh the benefits!
   

6. “God gave GAAP”
   Again, this relates back to Myth 1,  that accounting is simply a set of arbitrary rules that must just be memorized. We are taught these rules with very little discussion of how they are determined, beyond also having to memorize the names of standard-setting bodies! This leads to students have a false sense that the standards are simply there, rather than created, and open to change.

   It wasn’t until my last semester of my BBA that one of my professors addressed the fact that these rules are set by groups of people who have conflicting pressures from investors, business, and government, and who may arrive at compromises that aren’t great accounting!

   The result of this is summed up in a great quotation from the article: Dr. Pava writes, “On those occasions when I can convince students that accounting principles somehow might be improved, students simply cannot fathom why the standards are not altered immediately.”

7. “I’ll learn what I really need to know when I get my first job”‘
   This is a myth I still believed in when I first picked up this article. Of course, we learn the ground rules in accounting class, but there is so much to learn once you get out into the work world, it can feel as though you learned nothing in school! However, if you did not have an accounting degree behind you when starting work as an audit or tax associate, imagine how much more they would have to teach you!

Our assignment was to respond to one of these myths, or come up with additional myths on our own. Does anyone have any myths to add to the list? Disagree or agree with one of the existing seven listed here?

In one of my classes, we are required to bring in articles each class to stimulate class discussion. I brought in one of the front-page articles from CFO.com “Could New Regs Bring More Lawsuits?”

That link is most likely quite temporary folks, as the permalink function gave me an error message when I tried to use it. So click away quickly.

Anyway, after learning last semester in audit class about auditor liability, this article brings up some scary stuff for accountants.

Essentially, the article says that these proposed regulations will make it easier to sue third parties (banks, auditors, accountants, suppliers even) involved in some way with fraudulent companies.

It’s a bit scary to think that, as an auditor, there is no surefire way to stay out of trouble. You can perform your work as diligently and honestly as possible, and yet still be opening yourself up to lawsuits. And unlike doctors, who can purchase insurance to protect themselves when something goes wrong, there is no insurance policy for not figuring out that your client is committing fraud!

Does anyone have a more detailed (yet simplified) explanation of these new regs? (The article doesn’t really explain the regulations, just what the writer considers the potential outcomes.)

Hi guys!

So I’ve been a little quiet, which usually happens when I’m not studying enough for the CPA exam! After hearing that I passed REG, I had a hard time motivating myself to study for AUD, which seems so much easier! But still, I need to keep reviewing, or I might find it much harder than I expected!

Classes started Thursday, so I have to get back to homework and readings. My first assignment of the semester is due tomorrow. We have to read an article titled “The Seven Deadly Myths of Accounting” by Moses L. Pava, and then write a one-page response about a particular one of the myths we agree or disagree with.

I couldn’t find a copy of the article online to link to, so I’ll summarize it briefly. Essentially, the article seems to be written for an audience of accounting professors, regarding the myths that accounting students have.

These myths touch on the idea that many students have that accounting is simply a set of rules, and if one memorizes the rules, one will be a successful accountant. Pava argues that accountants, above all, must be approach accounting like a foriegn language, and must learn to communicate in this “language of business” and that simply memorizing the rules is like trying to learn a foreign language by memorizing long lists of vocabulary words, without learning grammar or practicing speaking or writing.

The myth I chose to respond criticizes the way accounting students accept accounting rules without questioning them. Pava talks about the blank looks he gets from students when asking them to talk about the weaknesses of how we calculate net income. He says:

“It is almost as meaningless as asking them to evaluate the benefits and limitations of “subtraction” as a mathematical operation. Just as students take subtraction for granted, students have inherited a view where net income enjoys a granite-like status. Net income simply is.”

I’m sure that some of you out there held beliefs as students that were ripped to shreds upon entry into the “real world” of accounting or business. Could you share some of those “myths” with us that you think should be on this list?

I (very luckily) have a position as a graduate assistant this semester, which means I get to help one of the accounting professors grade things and whatever else they need done.

So, the last final we have to grade was yesterday morning, and since then we’ve been in final-exam-grading-frenzy mode. I can only help with a limited amount, because grading problems can be pretty subjective sometimes. I have tried to help out as much as possible though, as the other grader has so much work to do!

Grading problems is actually kind of fun though. It can be hard to decipher what students are trying to say sometimes, but that makes life more interesting. And the problems I’m grading relate to some of the stuff on the AUD exam so I even get to review a little, although this test is much more in-depth on some points than the CPA exam is. We should be done sometime tomorrow, if all goes well.

Hope everyone else is doing well, and hopefully you’re all through finals (if you have them) and are looking forward to the holidays!

On Monday, I have my only final exam for the semester – TAX. (My other classes had time-intensive projects which are all done!)

So, I’m working on studying that. It’s hard to sit down and focus on tax. I’d much rather be watching Roger’s CPA Review videos and learning about Audit.

Roger’s blog had a nice little summary of some changes that’ll be coming to the CPA exam over the next few years. It’s interesting to see how they’re changing the simulations. I wonder if it’ll make it easier. I wonder if it’ll make it a better test?

A few years ago, you had to take the CPA exam all at once. From what I’ve heard, you had a two day window and took two parts each day. That wouldn’t work very well for my study style, so it seems easier the way they present it now. But I’m sure there are other students who don’t like to drag out the studying the way I do! So, I wonder if they have shifted the difficulty from endurance to more difficult questions since then?

One of the big topics on the Regulation section of the CPA exam is Legal Liability. The legal liability section discusses under which circumstances an auditor can be sued for misstatements in a client’s financial statements.

Following GAAS (Generally Accepted Auditing Standards) is a good defense against any of these charges, so Regulation also tests CPA candidates on GAAS.

The Securities Act of 1933 regulates original issuance of stock, and governs auditors responsibilities as participants in that process.

The Securities and Exchange Act of 1934 regulates the subsequent trading of stock (ie, the financial statements companies issue to stockholders) and matters relating to fraud.

Conveniently, my audit class has been complementing my Roger CPA preparation, and we’ve been reading some cases about auditors getting sued for negligence (and losing). It’s a cool way to review legal liability, and the burden of proof for negligence. It’s also interesting to see cases where auditors got duped by clever clients, but the auditors were still held accountable because they could have found the fraud if they took their audit one step further. It’s a good reminder to maintain healthy professional skepticism.

Some interesting reading to relate Regulation studying to the real world is this article on Re: The Auditors that addresses a case faced by PWC and the auditor’s responsibility to find fraud under the Sarbanes-Oxley Act (2002) rules.

When I named this site “AccountingElf” the creatures I had in mind were the elves from the story “The Elves and the Shoemaker.” While the Shoemaker slept, the elves did careful, beautiful work making shoes.

Unlike the elves in the story, I do not really stay up all night doing accounting. Sometimes I even have time for fun!

I have a lot to post about – last week was my university’s Accounting Career Fair, where I got to meet a few of the firms that are actually hiring this season. Over the weekend we had our first home football game, which means an abundance of craziness everywhere. This week it was back to school with some group projects, and luckily a few recruiting events in the wake of the career fair.

I’m in the middle of reading for tax class tomorrow, so I’m going to get back to that, but hopefully I can put some substantial posts up soon.

I’m quite happy with my levels of studying for the last couple of days. I just need to keep it up tomorrow, and we’ll call it a good week (despite the football weekend!)

If you missed my little post about diversity and accounting recruiting, check it out here. There are a lot of really insightful comments already, and they make very interesting reading.

Today was a good first day. I have great professors and interesting classes. It seems like the Masters of Accounting program is going to include a lot more reading and discussion than the undergraduate Accounting program.

Today I had class, went to the gym (its one of my forms of procrastination, but good for me!) and did some reading for class (there’s still some hours of reading ahead for me tomorrow.)

I tried to fit in an hour of studying for REG, but bedtime came too early, so only got in 45 minutes.

REG So Far

Right now, I have watched the Roger CPA videos for the REG-1 section (individual taxes.) That covered in about 3 hours what I spent a whole semester learning at school!

Before I watched the videos I spent some time reading over the Roger book chapter, which took awhile because it’s a long chapter.

Now I’m going back through Roger’s CPA review book and making note cards. This is VERY time consuming, but I tried to do it the week before the exam for FAR, and it was too late by then. Now when I get through all of the sections, I’ll already have made note cards to review with.

Also, I’m  not super comfortable with the topics on the Regulation section of the CPA, so some extra review before I even attempt the homework problems can only help! My CPA exam preparation strategies are always open to changes and improvements!