Finding Joy

So, what are you doing for fun these days?

Among other things, my wife and I used to travel a lot and go to amusement parks. Both of those are reduced greatly or out altogether under current conditions, although I must admit we are planning a camping trip in a couple of weeks. That seemed safe to us. The campsite is isolated. The walking trails are easy to maintain social distance on and we always washed our hands after bathroom breaks anyway, so it should be a trip fairly close to normal, whatever that is these days.

The new thing I picked up was playing strategy games with my son via email. He found an application that people have been using to create boards and pieces from old Avalon Hill strategy/wargames. I taught him to play a game called Victory in the Pacific when he was a teenager and we tend to play it whenever one of us visits the other to this day. Over the last few weeks, we played several games over email – sending our turns back and forth and talking a little smack on the log file and over text messages.

I didn’t realize how much I missed playing these games and the joy it brought until we started playing. I searched online and found a copy of another Avalon Hill game, Third Reich, and have been playing it as well. The great thing about playing these games is that you don’t have to be in a crowded area to have fun. You can do it from the computer and still interact with others. I’m sure others have a ball playing PlayStation or Xbox, but that is not where I find my fun. In my case, it’s a long-lost hobby that I’ve rediscovered.

What joy from the past have you rekindled as a result of COVID induced semi-isolation?

Protect Yourself

While we are all taking precautions to protect ourselves from COVID-19, practicing appropriate hygiene such as wearing masks, washing hands and staying six feet apart, there is another area where we need to practice proper hygiene and that is around our personal computing devices.

I had a “fun” night a couple of days ago when someone in my extended family fell for one of many hacking schemes out there these days. This one was a pop up that took up the whole screen and appeared to say there was a serious problem with the computer. It conveniently gave the person a number to call at the computer vendor and when they called the number, the man answering the phone gave the person his name and vendor ID number. Of course, it was all fake. The worst part was that the person used the “fake attack” as an entry point and convinced the family member to open up their Amazon and one of their smaller bank accounts to see if they had been hacked as well. Meanwhile, the friendly and helpful person was watching every keystroke and now had IDs and passwords to both accounts.

Fortunately, someone else in the house realized this was going on and called me and I convinced the person to hang up and change their passwords immediately. They did do something right. The family member told the person on the line they had to go eat dinner and would call back. Thinking that he would get even better stuff, the hacker didn’t immediately use the IDs and passwords to withdraw money or make purchases. The bank account is in the process of being shut down and both accounts are being monitored daily for unusual activity for the time being.

While we can all shake our heads about these things, it is a reminder that we all need to be vigilant and constantly remind our co-workers, employees and loved ones to be careful with any message they get online. Obviously, one basic precaution is to make sure you have antivirus and internet protection software on all your devices, but that is not enough these days to stop all types of attacks. The key is to make sure you are vigilant every day all the time – assume the email, text or phone call is fake until you verify through some other means it is not. Here are a few tips to share:

  • Don’t call the number or link to the websites on emails, texts or popups you get.
  • Do a Google search, link from your already saved favorites or call a number you look up to check to see if the email, potential threat or request for help is legitimate.
  • Do a search for the type of item you are seeing from a different device; there are often very good sites out there that list all sorts of malware, phishing and other types of attacks going on.
  • If the alert came via email, see who the email is really from; most email programs allow you to hover over the email address and see if it is really from the person or organization it appears to be from.
  • When it comes to any message, make sure everyone understands that it is not offensive to call someone to ask if they really sent you the email or text before you click on any links.
  • Wherever possible, set up two-factor authentication on all your important accounts – especially those holding financial assets that are easily transferred.
  • Finally, reinforce these points constantly at every few weeks.

Remember, good hygiene applies to the virtual world as much as the real world. Be safe out there!

IASB Proposal on Updating Financial Statements and Disclosures

I recently had the privilege of leading a task force to assemble the AICPA Financial Reporting Executive Committee’s response to the IASB exposure draft on General Presentation and Disclosures (Primary Financial Statements). An article about the response, including additional quotes from me, can be found here.

I’m sure one of the first questions many of you may ask is: Why should we care about what the IASB is doing? The battle to move to one accounting standard setter was decided a few years ago and in the U.S., FASB rules, not IASB. While that’s true, that doesn’t mean U.S. CPAs are not impacted by IASB. To the contrary, many U.S. CPAs work for companies reporting under IFRS. Additional CPAs work for companies that, while issuing consolidated financial statements in U.S GAAP, also have to produce many IFRS-based reports for individual entities under statutory reporting rules.

In addition, as our letter states, U.S. investors are one of the largest user groups of IFRS, as they hold many trillions of dollars in securities issued by companies that report under IFRS. Anyone in the financial planning space has a significant need to know and understand what is going on in the IFRS world.

Finally, while this was not a joint project, any change IASB makes is sure to be on FASB’s radar as something to consider in the future. It’s better for all of us if we work with IASB to get things right in the first place rather than have to battle to create differences between FASB and IASB, if FASB takes up similar considerations in the future.

The IASB proposal includes:

  • The creation of a new “unusual items” line item in the financial statement
  • The disclosure of certain “management performance measures” in footnotes
  • The segregation of the Income Statement into “operating, investing and financing” – but with different definitions than those used in the Statement of Cash Flows
  • The division of equity investments and joint ventures into Integral and non-Integral
  • The disaggregation of dissimilar immaterial items in the financial statements

You can see the response from your FinREC committee here.

The article and comment letter are short reads and should give you a solid idea of the most important changes being considered by FASB and our suggestions on how IASB should move forward.



COVID-19 Impact on Accounting

It seems there is no place exempt from the impact of COVID-19, including accounting. The impacts have been numerous and all over the board. Everyone seems to know about the extension of the tax filing deadline to July 15, but that is not really an impact on accounting itself. Here is just a small list of impacts that need to be considered:

  • Asset impairments (from operational disruptions)
  • Accounting estimates, including
    • Variable consideration from contacts with customers (i.e., revenue)
    • Bad debt reserves (on top of the change to CECL)
  • Speaking of CECL, the new credit loss standard was delayed for some entities
  • Oh, and the revenue and lease standards were further delayed for companies that had not yet adopted those changes
  • Changes impacting hedging from transaction that may not now take place or will be at substantially different volumes
  • Accounting for various parts of the CARES Act – are the payments government grants, revenue, loans or tax changes (or maybe all four)
  • Lease modifications due to the pandemic that can be elected to not apply lease modification accounting (in some cases)

And like the change in the tax deadline, the SEC provided some relief on quarterly filing deadlines, but also made it clear they expect to see a lot of disclosure around the impacts of COVID-19 on the business. Finally, let’s don’t forget the potential impact to internal controls from everyone working at home – while not a change in standards, it certainly impacts the accounting process.

I’m sure everyone is trying to figure out how to handle keeping things afloat in this new abnormal, but we can’t lose sight of all the changes, many of which will prove helpful in presenting financial results that make sense, while trying to still get the day-to-day accounting work done. The SEC, FASB and AICPA are issuing a lot of statements and documents, so I won’t try to replicate all of that work here. Just know that you aren’t alone and lots of people are doing their best to provide help and guidance in these truly unprecedented times.

Taking a Vacation from Vacations

I recently took a week off (OK, four extra days around the July 4th holiday weekend). This week off was very different from many vacations over the last decade. There was no hauling gear down to the beach, no getting up early to hit the theme park as soon as it opened to get in as many rides as possible, and no dragging the grandkids to one more place to make sure we got in every event in the compact amount of time we had to spend with them. (They live 800 miles away). Instead, this vacation was held at my son’s house. We played on the kid’s playground, got cool in the 12’ diameter above ground pool and spent time making train track set-ups in my grandson’s room. (Brio still exists!)

The days didn’t speed by, but they didn’t drag either. Each morning, we slept in until our bodies woke up – with no alarm clocks to tell us to get going. When the grandkids went to bed, we had the time (and energy) to play games with the other adults. We made most of our meals at home, with trips out limited to a couple of grocery trips when we bought lunch to bring home and one special take-home meal on our last night in town.

Yes, I checked email once or twice each day, but I didn’t spend time working on any projects. My mind and body got the rest it needed after almost four months of continuous work at home. When I came back, I felt rested and mentally alert. I was ready to hit the ground running and had a very productive (if short) week when I started making that 15-second commute from the kitchen to the study again on Wednesday morning.

This vacation was very different, but maybe it was what a vacation was supposed to be about all along. It was time to recharge, not fill social media with the latest experiences I rushed to get done; time to really sit with the grandkids and listen to them instead of waiting an hour for a one-minute ride; time to spend with those I love to remind me that, while my colleagues at work are great, it’s those I love who deserve my uninterrupted attention as much as any of my direct reports. Yes, it was a new type of vacation, or maybe it was an old type of vacation revisited for the first time in a long time, that reminded me what vacations were supposed to be all about in the first place.

Power Struggles Over Accounting Records? by Guest Blogger Alan Jerry Pan, CPA

I’m on vacation this week, so Alan Pan, CPA, from Beijing Normal University has graciously agreed to supply a blog while I spend time away from work.

Power Struggles Over Accounting Records?

In a move on June 4, President Donald Trump re-affirmed the recommendations from a 1988 working group report on financial markets “to discuss the risks to investors … and financial markets posed by the Chinese government’s failure to uphold its international commitments to transparency and accountability and its refusal to permit companies to comply with United States law.” The timing of the release is potentially muddled by politics, both international and domestic, but highlights differences in PCAOB and SEC regulations and enforcement and Chinese government requirements. The stated purpose of the release was “to end the Chinese practice of flouting American transparency requirements without negatively affecting American investors and financial markets” and “ensure that laws providing protections for investors … are fully enforced for companies listed on United States stock exchanges.”

Read more:

The fact that the White House is talking about PCAOB and SEC regulations suggests we have a colleague of ours working around President Trump … or an imposter trying to make accounting services workers look like tyrants trying to impose hegemony into a foreign jurisdiction. There are several reasons why the accounts and books we keep require a high level of integrity and, in some cases, protection from prying eyes.

  1. The records we keep provide a map of resource and interaction locations. For every transaction, we are able to identify the source of the transaction and the relocation of resources to another location. This is handy to know if someone asks where an organization keeps its assets and when such assets are expected to be converted. What this map can provide is information on the what, where, when, how and why of the resources we track.
  2. When we collaborate on creating and updating accounts, we work on a mutually shared book of accounts. These shared records are problematic given how much additional political opportunities can be gained or lost when more than one person knows the location of valuable assets. If we are the only keeper of such books, this could be a convenience, but at the same time a risk if someone loses the records of what and where we keep our assets. If we share the books with others, this is also a convenience, but also a risk of leaking information on assets and its vulnerability to access.
  3. The more the value of the books we create and maintain, the more attractive it becomes to control the record keeper. As we continue to construct our books, the records we keep will be increasingly valuable and important to possess. From a small book of a few thousand dollars to a large book of billions of dollars, our records provide information on the location and transactions of what resources, where resources are located, who to talk to, when we can access them, how to do it and why we would use them. Of course, much more strategic information can be generated from these questions and our abilities to answer these questions are not limited to what I list.
  4. As the record keeper and/or tracker, we put ourselves at risk of being dragged into political arenas over the information we possess. A few thousands of dollars tracked in a book may not seem like much, but when combined with other accounts, it could aggregate to trillions. Each worker in accounting services is about as important as the other because we share very similar abilities and skill sets to be able to reverse-engineer and re-trace books, even without the original record keeper. Think what a person of ill intent could do if in possession of records detailing assets that amount to a significant sum of money. Think how valuable it is to obtain information on the location of strategic assets and what people would be willing to do to get such information.

For those of us specialized to provide such services, do we really want to voluntarily increase our danger zone and risks by offering ourselves as political pawns for power? In addition to the records we keep, should we participate in power struggles? For the records we know, is it worthwhile to put our books out in the open to be readable by anyone? Each one of us needs to make an informed choice.

Alan Jerry Pan, CPA
Faculty of Education
Beijing Normal University

Equality of Opportunity

I’ve been doing a lot of thinking lately about the words we are all created equal. I’ve also been thinking about equality of outcomes and equality of opportunity. I always thought the system was responsible for equality of opportunity, but the outcomes were up to the individual. Such thoughts made me comfortable that my success was due to good choices and hard work and the same was available to anyone no matter what their color or creed.

I’m also a big believer in numbers; I’m a CPA after all. That means I also believe in things like the law of large numbers and reversion to the mean as sample populations get larger and larger. What I wasn’t doing was reconciling those two beliefs. Yes, I can point to “bad choices” or other circumstance when it comes to any single individual and the life outcomes they attained. The reality is that if those same outcomes apply in disproportionate ways to larger and larger sample sizes or one whole group versus another whole group, then there must be an explanation beyond individual choices.

One apparent answer is the system is set up for one group to succeed disproportionally more at the expense of other groups. When the difference in the groups is skin color, the answer points to a system that favors one race over another. If calling such an occurrence systemic racism causes you to be uncomfortable, then that is a good thing. You should be uncomfortable with an unfair system that gives some individuals a leg up simply because of their skin color. That is not what the founding documents of this country called us to aspire to achieve.

Yes, we have come far as a country, but we have not come far enough and where we are is not good enough. We must be better if we are to be the country we are supposed to be.

Risk Appetite

COSO recently released a paper looking at risk appetite. Risk appetite is a vague and usually misunderstood concept related to internal control and risk management. Risk must be taken to move a business forward. Even the simple act of opening a store or posting something for sale on a website involves taking on some risk. Don’t believe me? In order to sell something online, a website has to be set up and arrangements made to accept payment. Even if a person does all that on their own, they are taking a risk that the time they are investing on such an effort will provide a greater payback than spending that time on something else.

At a very simple level, risk appetite is how much risk an organization is willing to take. However, too often risk appetite is used interchangeably with risk tolerance. Risk appetite is different because risk tolerance is more about how much variability in outcomes the organization is willing to tolerate, while risk appetite is about how much risk the organization is willing to take on in the first place. Organizations need to consider risk appetite when developing strategy and plans.

If a strategy that calls for a lot of risk is misaligned with an organization’s risk appetite, the strategy is destined for failure. That sounds obvious, but the reality may be less easy to spot. An example from the document discussed an organization that had a strategy “to grow business by expanding global manufacturing locations.” However, when it became clear that some global locations presented risk that exceeded the manufacturer’s appetite, the strategy was updated: “To grow business by expanding to global locations within established infrastructure requirements and governmental regulations.”

Most people would agree the revised strategy involved a lower level of risk that apparently was in line with the organization’s lower level of risk appetite, but also limited the potential benefit from manufacturing across the globe. The point is that an organization needs to understand its risk appetite to understand if it can accomplish the strategy and goals it sets out. If the risk appetite is not aligned with the strategy, then either the strategy or the risk appetite needs to be changed.

Musings about COVID-19 and the Return to the Office

These are some random thoughts I’ve had lately about work, life and press coverage under the COVID-19 pandemic.

  • Do the people who write the articles about never seen before numbers of unemployment claims and rates of unemployment implying that these things seemingly came out of nowhere really not realize this didn’t just happen, but was caused by government-mandated shutdowns never seen before in the history of our country?
  • Is it misguided to think that after proving you can be at least as productive from home as in the office that you will be allowed to continue to work from home several days a week even when the pandemic is completely over?
  • Do people who report the total number of infections realize the number will never do anything but go up? The real numbers we should be looking at are the trends in new daily cases and the number of people with the virus active.
  • Why has the primary focus of school become providing day care and lunch instead of teaching and learning?
  • Is it wrong to want to scream when you see yet another article on what you can do to fill all the extra time you have when you actually have more, not less, work to accomplish because of the pandemic?
  • If we have never developed a vaccine for things from the common cold to HIV, what makes us think we can develop a vaccine for this virus in a matter of months?
  • What happens if we never develop a vaccine? Do the powers that be embrace the concept of herd immunity and if so, was the delay in obtaining that herd immunity worth it in the long run?
  • I never realized how separate the supply chains for restaurants and grocery stores were; I figured the food all came into one place and then was split up, but it’s clear that it doesn’t work that way.
  • Did you realize how much you can save by not paying for gas, entertainment and travel?
  • Did you notice the definition of essential changed, maybe for the better?

That Dreaded Question

How are you doing?

I’ve run out of ways to answer that question. Now I dread getting it, but somehow, I keep asking it myself. Well, I recently read a great article from Quartz at Work on questions to ask instead of how are you doing? I’m going to include five of them in this blog along with my answers.

What surprising thing have you been stocking up on (besides toilet paper)?

In my case, it is chocolate filled Belvita cookies. My daughter loves those things … and did you know not every Sam’s Club stocks them?

What’s the easiest part about the stay at home requirements?

This one is easy – not having to drive 2+ hours each day!

What is something you miss that surprises you?

I’m not surprised I missed my colleagues, but I am surprised I missed the time my commute gave me to separate work from home and to call my family spread out across the country.

Which member of your family have you been thinking the most about during this time?

This one is hard because I worry about my mom(in-law), dad, sister and children. They are spread across five states and one foreign country, so everyone is in a different situation, but the one I worry about the most is my daughter in Tokyo. I don’t worry because she is in Tokyo, but because she is the only one living, and therefore cooped up, by herself. Whenever I get too worried, I remind myself she lived in New York before moving to Tokyo and therefore things could be much worse!

What time of the day is the hardest?

No one wants to admit it because we all want to put on a brave face, but at some level, this whole experience stinks. It is healthy to admit that and admit when those hardest times hit. For me, it is currently 5:30 p.m. I want to shut everything down and “go home” for a little while, but I am battling myself to do “just one more thing.” I have a hard time admitting I can’t do it all and, guess what, almost always it can wait until tomorrow!

So next time you join an online meeting, ask one of the questions above instead of “how are you doing?”