August 2018 TSCPA Executive Board Meeting

While the core purpose of professional associations like the Texas Society of CPAs (TSCPA) continues to be about helping members achieve success; member expectations about what that help should be continues to evolve. And like everything else in life these days, that evolution and change is occurring at an accelerating rate.

The TSCPA Executive Board received updates on two key task forces dealing with those changes. One task force is dealing with brand issues, so members know the TSCPA and its 20 local chapters work together to support our members. Another task force is looking at how TSCPA and chapters can help each other and be more efficient in serving those same joint members. Our members are all both a member of a local chapter and the state-level TSCPA; and member expectations cannot be successfully met by either organization on their own. Together, however we can provide a range of support, resources and experiences that will satisfy not only our existing members but draw new members to the paired organizations.

The TSCPA Executive Board also spent a significant amount of time diving into the future of continuing professional education (CPE). One of the hallmarks of our profession is the embracing of continuous learning by our members. We even embraced CPE in our requirements for continued licensure. The model of monitoring hours in a classroom or conference served us well for four decades, but the world has changed, and member expectations about how and when to receive CPE has changed with it. Three of the mega-trends impacting CPE include:

  1. Cost and quality of CPE are no longer directly correlated
  2. Participants expect just-in-time delivery of CPE topics
  3. Participants expect interaction in their CPE

TSCPA is working on a CPE specific strategic plan to address these and other changes to CPE to ensure our members continue to be able to look to TSCPA and their local chapter as a key enabler of their continuous learning throughout their careers.

The TSCPA Executive Board meeting covered several other topics including the report from the Texas sunset commission. The good news is that the sunset commission recommended the continuation of the Texas State Board of Public Accountancy (TSBPA), so your license is safe for another 12 years. In my next blog I will go into more detail about all the recommendations from the sunset commission about the future operations of the TSBPA.

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Bad Behavior

If you are a sole proprietor with a staff of one, you don’t have to worry about workplace issues among employees.  If you work in any other size office, you may have to deal with issues between employees.  I’m not talking about honest disagreements about how to best serve customers or grow the business.  I’m talking about the possibility of one employee intimidating, discriminating against or harassing another employee.  It seems like every day another headline comes out about a high-level individual either committing those acts or not handling the situations appropriately when it was brought to their attention.  The list seems to be endless; John Schnatter, Les Moonves and Urban Meyer are just the latest high-powered individuals to be caught up in the results of bad behavior.  But, bad behavior does not just occur at the top.  Behavior that can disrupt or even take down a business can occur at all levels.  That is why every business must do three things.

First, have a policy about such behavior.  Having such a policy sounds obvious, but many smaller businesses don’t bother with such things because “everyone knows what to do.”   The short answer is if you don’t tell them what is wrong, the defense will be “I didn’t know we couldn’t do that.”  The policy does not have to be a detailed list; a few sentences will do.  And, have every employee acknowledge they have read the policy every year.

Second, have a way for people to report incidents, a process for investigating the incidents and a plan for taking action based on those investigations.  While asking the person to first report incidents to their supervisor is good, there have to be other paths because it might be the supervisor or the supervisor’s supervisor that is exhibiting the bad behavior.  Asking someone to confront their perpetrator does not work. While some people do make up charges to get a person in trouble, a vast majority of the time, the reported behavior really occurred, so the behavior must be dealt with.  Telling people to just act better is not enough, especially if the offense is truly serious or has occurred multiple times.  Every business needs to be prepared to discipline or even fire the offending employees.

Third, make sure everyone knows it is their responsibility to report bad behavior.  The person suffering at the hands of another employee may first reach out to a co-worker or a different supervisor.  It is not enough to tell the person they need to report the employee harassing them.  Employees need to know if they are told about bad behavior, they need to report the behavior as well.  Reporting bad behavior is not about retribution.  Reporting is about doing what is best for the business and making sure all the other stakeholders are protected.  That protection is everyone’s responsibility.

As CPAs we take pride in our integrity and our pledge to put the public interest ahead of our personal gain.  In today’s world, where business reputation is as important as publishing accurate financial results, are you ready to step up and make sure the business is protected from employees doing bad things?


Accounting in Extraordinary Times

One of the highlights of TSCPA’s Annual Meeting of Members was a presentation by Bill Reeb, CPA, CITP, CGMA and Vice Chair of the AICPA.  Bill covered several issues impacting the profession in this age of ever accelerating change and progress.  I was pleased to hear Bill say one of his goals is to make sure we leave our aspiring and recently certified CPAs a profession that is as good as or better than the profession that was left to us by our predecessors.  That desire is one of the reason I am active at the international, national, state and local levels of the profession.

In many aspects, the profession is doing as well as ever today. Our members are financially successful with skills and services that are in high demand. Such a position tends to make one complacent, but instead we need to take our current success and build on it.  We need to disintermediate ourselves before someone else does it to us.  Change is happening.  By 2027 (that is only eight and a half years away,) 75% of the companies in the S&P 500 may no longer be there.  Companies that are unwilling to change don’t continue to be successful, they go away.  In fact, disruption used to be seen as a challenge to companies but now 74% of CEOs say their businesses aim to be disruptors, and 65% of CEOs say disruption is an opportunity.  There are many external forces driving changes in the profession including:

  • Global insatiability
  • Regulatory complexity
  • Technology and cyber issues
  • Workforce changes
  • Financial challenges worldwide

We live the profession every day and it looks the same to us, but someone looking in from the outside sees the change.  Think of the time you had a puppy.  You don’t really see the changes because you live with the puppy every day, but your friend who only comes over every couple of weeks notices how much change has occurred each time she visits. The profession is changing radically in both what is expected from it and what it does.  The top three skills finance executives now look for in auditors include:

  • Technology skills (67% say they are necessary)
  • Communication skills (66% say they are necessary)
  • Critical thinking/judgment skills (65% say they are necessary)

The percent of CFOS saying these skills are necessary have all increased by double digits since 2014.

When it comes to reporting, the future is moving beyond just financial reports. While not big in the U.S. yet, globally there is a lot of interest in integrated reporting.  But even in the U.S., reporting on topics such as sustainability is growing exponentially with 82% of the S&P 500 publishing a sustainability report in 2016.  Even more to the point, 73% of portfolio managers consider sustainability when making investment decisions, and 69% believe sustainability reporting should be subject to independent assurance.  The question for the profession is are we going to be the ones to provide that assurance or are we going to leave it to others?

Another area where our existing skills provide us an edge, but we need to develop more skills, is around valuation work.  Eighty-seven percent of the S&P 500 value consists of intangible assets; something that is not consistently measured in financial statements.  And even when intangibles are measured and subject to audit, we don’t always get it right.  Thirty-one percent of the deficiencies cited by the PCAOB in 2017 related to fair value measurements.  We can argue that valuations shouldn’t be a big part of financial reporting, but if valuation of intangibles is what is driving the value of companies today, we can decide as a profession to either ride the wave or get beat up by it.  As one who has spent a decent amount of time at the beach, I can tell you riding the wave is much more fun.

There is so much more I can talk about, but I think you get the idea that these are exciting times for the profession.  We are privileged to be part of a successful profession with a bright future, but it will stay that way only if we keep changing with the times.


Fraud

One great session at the TSCPA Annual Meeting of Members was an optional CPE session on the Changing Face of Internal Fraud presented by Steve Dawson, CPA, CFE.  The session addressed all three corners of the Fraud Triangle – Incentive/Pressure, Rationalization and Opportunity.  This blog will briefly cover each corner.

Incentive/Pressure can come from internal aspects such as compensation plans, but most often the pressure to commit fraud comes from outside the organization.  The person committing fraud has some perceived financial need that cannot be shared and can only be resolved by committing fraud.  Need may come from something bad like a gambling or drug habit, but it does not necessarily imply financial hardship.  The “need” may be to show success by having money to buy a new boat or take fancy trips.  The point here is that often the need is a perception of the fraudster and not something that can be directly addressed by an organization.

Rationalization is very important and underappreciated in how it enables fraud.  The reality is that a clear majority of people committing fraud think of themselves as decent people.  How does a decent person convince themselves that stealing is not bad?  Often times they justify the fraud by saying they intended to pay the money back, or that they were entitled to the money because of how hard they worked, or how important their contribution was to growing the organization.  The ability of the human mind to make bad actions seem appropriate, or even noble, can be amazing.

The final corner of the triangle is opportunity; and this is one area where the organization can have direct impact.  Internal controls are put in place not only to detect fraud, but to increase the perception of detection.  Controls need to focus on the mind of the potential perpetrator.  Think of the last holiday where you passed three police officers in a 15-mile stretch.  I bet you drove closer to the speed limit because your perception of being caught for speeding was increased.  The point of controls is to increase the perception of being caught and get people to do the right thing as a result.

Controls such as fraud and expense policies, and policies that remove a presumption of privacy such as the ability of the company to review any emails sent over its network, all serve to increase the perception of being caught.  So, do publications that talk about the results of fraud investigations (with appropriate details removed to protect privacy).  If people hear about others being caught, they are less likely to think they can get away with fraud, and therefore less likely to commit fraud in the first place.

The bottom line is to create a perception that the organization takes fraud seriously, and the best way to create that perception is for the organization to take fraud seriously.  Does your organization take fraud seriously?


2018 TSCPA Annual Meeting of Members

The Texas Society of CPAs (TSCPA) held its Annual Meeting of Members recently.  In addition to taking care of important business, attendees got to hear from great speakers on several topics including fraud, leadership, being yourself, and changes impacting the profession.  Membership declines continue, although at a reduced rate of one percent.  Changes in membership are occurring, and it was noted that the TSCPA Board of Directors now has more members in their thirties than in their sixties.  The Society is solid financially with strong reserves, although the CPE Foundation continues to show strains as the way CPAs obtain continuing education changes.

Two important task forces are beginning work including one on chapters and one on the TSCPA brand.  The chapter task force will be focusing on integrating technology and leveraging resources among the chapters and the state; while the brand task force will be focusing on a unified approach including our visual identity, brand standards, and leveraging existing relationships with faculty to expand student and candidate outreach.

If you ever wondered how all that money donated to benevolent funds, political action committees (PACs) and the Accounting Education Foundation (AEF) is handled, you found out at the annual meeting.  In addition to all the work TSCPA and chapters did to help members who suffered through Hurricane Harvey last year, the AICPA Benevolent Fund provided over $600,000 in support to members in Texas.  The TSCPA CPA-PAC will spend over $400,000 in support of candidates in 2018; but as big as that number sounds, it dwarfs in comparison to many other PACs when you consider the TSCPA CPA-PAC was ranked 152 in campaign contributions in the 2016 election year.  Finally, the AEF was able to raise money to set up a $75,000 scholarship fund to provide the Bob Owen scholarship to promising accounting students in perpetuity.  Bob Owen was a great leader and contributor to the CPA profession in Texas for decades; and while he will be missed, he will also now always be remembered.

The meeting ended with a substantive question and answer session.  Technology allowed attendees to submit questions online, and then other attendees could vote up the questions they felt were the most important and should be addressed.  Questions about Peer Review, the PCAOB, getting information to members, and how to become more active in committees and task forces were addressed.

If you missed the annual meeting you missed a lot of great information.  In future blogs I will provide you a little more information on topics a couple of our speakers addressed during the meeting.


Fireworks

The Fourth of July brings back many fond memories – cookouts, canoeing, softball, volleyball; but most of all watching fireworks.  Fireworks shows can often be like people you work with. Here are a few to consider.

The amateur – the fireworks go up one at a time with lots of time in between just like the work accomplished by new people on the team.

The skipper – the fireworks show is moving along, and then inexplicably the fireworks stop for a few moments, only to begin again; just like the person at work who seems to suddenly disappear then comes back performing work like their absence didn’t really occur.

The teaser – these shows have a good pace; and then you think you have a finale, but not really as the fireworks continue just like the person at work who turns in an assignment but then tells you they still have work to complete.

The complete package – the show has a good pace; the volume builds and subsides several times, but never stops and the ending has everything you could want just like the best professionals I get to work with every day.

I hope you have a great Fourth of July, and I hope the fireworks, and your team, are the complete package.

 


Before Engaging Your Keyboard

There is an old saying that goes “before engaging your mouth, first ensure that your brain is in gear.”  I think the modern variant to the saying should be “before engaging your keyboard, first ensure your brain is in gear.”  Both variants of the quotes have been ignored a lot recently, usually to the chagrin of those who failed to ensure their brain was in gear.  People are losing respect, jobs and potential future earnings, to varying degrees, due to statements that are quickly rescinded.  I have three ideas to keep you from joining the ever-growing crowd of those who wished they had not tweeted something.

  1. Never send an email, tweet or other written post when you are angry.
  2. Unless a quick response is life or death, sleep on your reply to any controversial subject before you hit send.
  3. Ask someone else to review your response before you hit send.

If you are angry, your brain is highly likely not to be fully engaged.  Road rage is a perfect example of what I mean.  People suffering from road rage are not thinking about anything but getting revenge.  They aren’t thinking about safely operating an automobile; they aren’t thinking about the bad outcomes that could affect them like a wrecked car or a further delay in getting to their destination.  Anger blinds you to full comprehension of the implications as much as being drunk or under the influence of some other legal or illegal substance.  If you must respond quickly, at least take a few minutes to walk around, let off steam and think about something else.  Just stewing on the issue for 15 minutes and getting angrier is not what I mean.  Until you actually “forget” about the topic for at least a few seconds, you won’t be able to get past the anger and look at your response comprehensively with a clear mind.

Life or death responses are so rare, many of us will only have a handful of such situations occur in our lifetimes.  Sure, if you are a 911 operator or a doctor helping with an operation over the internet, you can’t “sleep on your response,” the rest of us can. I can’t count the number of times I wrote and revised emails but decided to leave the reply until the next day, only to realize the next morning how harsh the email was and how much better I could have written my reply.  In today’s fast paced world where people are hyper concerned about speed rather than quality, we often lose touch that people can usually wait until the next day for a reply with no harm whatsoever.  You may not be the person with the most tweets, but maybe you could become EF Hutton – the person people stop to listen to when you do say something.

My final piece of advice is to have someone review your response before you send it. Writers have an editor for a reason.  The editor brings a different perspective and a fresh look at the writing.  That means the person you go to can’t be someone who is just going to egg you on.  You need someone who is willing to challenge you from time to time, as well as, someone who has a different, not opposite, but different, perspective than you do on several subjects.   That person can be a peer, a boss or a strong subordinate, and can be several different people depending on the subject.

One final thought.  People forget that the written word, and today with video recorders in every pocket, the spoken word is forever.  Thinking – engaging your brain – before speaking or writing is not a sign of weakness.  Thinking is a sign of intelligence and compassion, and don’t we need more of both today?