I’m currently taking an Advanced Accounting course at my university, which covers consolidation accounting, governmental accounting, and accounting for foreign currency exchanges.

All of these were topics on the FAR section of the CPA exam, and now that I’m learning them in depth, and seeing how confusing they are, I am ever more grateful to Roger CPA Review course for teaching me everything I needed to do so well on FAR.

I mean, I did a consolidation worksheet on my exam. And had lots of governmental accounting questions. But now that I’m learning them properly, in a focused, semester-long class, they’re so confusing!

I mean, it’s good to really learn these accounting methods in depth so I can remember them if I need them in the future, but I am really impressed at how Roger took these complex topics and gave me a simpler, condensed version that allowed me to get a 93 on FAR.

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?

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?