CPAs tend to be involved in their communities and often serve on school, church and other small service organization leadership boards. Your fellow leaders may bring an abundance of gifts from community contacts, the ability to fundraise or a deep understanding of how to provide the services to the community in the right way. As CPAs, we bring our own unique gift of understanding how financial results are presented, so we are often trusted as the financial eyes and ears of the organization. Such a service can prove invaluable in enabling the long-term viability of the organization, but as CPAs I think it is incumbent on us to do more.
The more is teaching others how financial reporting works and why it is important. The reason to do this is not just for the organization you serve on, but for the benefit of all the other organizations your fellow leaders serve on, as well.
I had a recent example of being a teacher in one group I work with. In addition to producing a profit and loss statement and a balance sheet, the organization produced a cash flow projection for the coming months. The cash flow projection was not very sophisticated. It simply assumed the revenues would be cash inflows and the expense would be cash outflows with no regard to potential changes in the balance sheet. Such a cash projection worked well for an organization that had already paid off its debt from a previous building campaign and tended to have small changes in other assets and liabilities from month to month.
The projection, however, became less useful when revenues were deferred for the first time because a program was delayed until the next fiscal year. Payments to participate in the program were received in one month, but (properly) deferred and recognized as revenue in the next month. The cash flow projection, however, did not take the deferral into account, so in the next fiscal year when the revenue was recognized (and budgeted), the cash flow projection missed by a significant sum because the cash was already in the cash balance and recognizing the deferred revenue did not result in any new cash inflow. This problem turned into a great opportunity to teach the rest of the leaders about balance sheet impacts on cash flow. For example, an increase in a liability usually generates cash while a decrease in a liability uses cash. Now my fellow leaders had a better understanding of how cash flows work and can take that knowledge to other boards they serve on.
Community service is one of the things that makes our profession great, but performing community services doesn’t necessarily mean forgetting about your CPA talents. In fact, using your CPA talents, and teaching others what you know in support of your community, can be some of the best things you can do.
How often have you heard the maxim fix the problem, not the blame? Management gurus point out that by searching for blame when something goes wrong, you simply incent your staff to avoid taking risks or worse, hide the truth when something goes wrong. Those two outcomes are definitely something to be avoided, but never seeking an understanding of what, or who, caused the problems leads to unintended consequences that could be just as bad.
People can talk about how we have to be “permitted to fail” and how allowing failure allows people to take chances that result in successes that might not have otherwise occurred, but people, your team, wants something else too – accountability. If you don’t believe me, just look at what happened after the financial crisis in 2008. Our government leaders were all very proud of how they “fixed” the problem and avoided a meltdown that might have led to another depression. In doing so, however, they failed to do one thing in many people’s eyes – hold those who caused the problem accountable for their actions.
If you think back to the savings and loan crisis and the junk bond problems of the late ‘80s and early ‘90s, there was a big difference. Yes, a crisis was diverted, but lots of people, hundreds of them, went to jail too. Even the Enron and WorldCom disasters early this century resulted in people being held accountable for their actions; that is, going to jail. The public doesn’t like seeing a lack of accountability. So what happened? If Wall Street wasn’t accountable, then government certainly was for their actions and people are holding them accountable. Oh, maybe not by voting the incumbent out of office, but by showing a complete lack of confidence in government institutions that is unprecedented in the history of this country.
So am I saying we need to get out the pink slips and start firing people when something goes wrong? Well, if that something is lying, stealing or harassment, then yes. However, if that something is not morally corrupt, but fixable, then no one needs to be fired, but someone has to be held accountable. Who is that someone? It is you, their leader. Saying it is your fault for pushing too hard or taking on too big of a risk – that is, taking accountability – is as important as fixing the problem.
Holding yourself accountable is the ultimate practice of servant leadership and allows the team to move forward because they know what needs to change and who will be accountable for making that change happen.
Most people say they want feedback, but also tend to react badly when negative or even constructive feedback is given. What most people really want is affirmation that they are doing a good job. They want the participation trophy that really doesn’t tell them anything about how they did or what they can do to better themselves. As a result, when people ask for feedback, most respondents either avoid answering or try to get away with giving some platitude like “you are doing fine” or “I wouldn’t change a thing.” The problem is such feedback does nothing to help you improve.
If you really want to improve, you need to ask for feedback in a way that lets other people know you mean it and that they won’t be open for attack the minute they open their mouth. The best way to do that is to limit the request and be specific about the topic. The limit is satisfied by saying “tell me one thing…” The specificity is then up to the requester. Some examples:
- Tell me one thing that would improve our weekly staff meeting.
- Tell me one thing that would make my emails better.
- Tell me one thing that would help you get more out of your periodic evaluation.
Just as too much choice leads to indecision, too much leeway in asking for feedback has your evaluator running a myriad of possibilities through their mind. By limiting the scope and topic, you help the person being asked to give feedback to focus and prioritize. An added benefit of asking for such focused feedback is that it usually ends up being something concrete that can actually be changed.
So are you ready for some feedback that will help you change? If so, ask me one thing….
Texas state law requires that every state licensure board be reviewed every 12 years to determine if the board should continue. The first step in the review process is a report by the Sunset Commission staff to the Sunset Commission. That step was recently completed when the report was released August 2nd. The full report can be found here. In addition to the conclusion that the Texas State Board of Public Accountancy (TSBPA) should continue for another 12 years, the report included a number of recommendations, with three key recommendations being:
- Changes to the composition of the Board of TSBPA
- Changes in requirements for non-CPA owners
- Changes to peer review requirements
The Sunset Commission staff report recommended that the board composition of TSBPA be changed from a ratio of 10 CPAs and five public members to eight public members and seven CPAs. This recommendation was primarily in response to a recent United States Supreme Court decision regarding anti-trust activity by a North Carolina Dental Board. TSCPA believes that such a change does not guarantee immunity from anti-trust claims, and other changes, including several already implemented by TSBPA, would be more effective in alleviating such concerns.
The recommended changes to non-CPA ownership requirements include eliminating requirements to hold a bachelor’s degree, as well as the requirement to receive 120 hours of continuing education every three years. These changes would not impact CPA requirements in both areas. Requirements for non-CPA ownership around percentage of ownership and responsibility for assurance services would also remain unchanged.
The Sunset staff is recommending that TSBPA amend its Peer Review rules to allow CPA firms to be reviewed on a frequency based on risk factors, such as if the CPA firm performs lower-risk work (compilations) or a low volume of work (only one compilation a year). The facts are that firms that perform only one or two compilations show a high percentage of deficiencies, so these are the very firms that need to be peer reviewed rather than eliminating the requirement. Compilations are included in the definition of attest services in Texas because the public places a high level of confidence in financial statements issued by a CPA. The recent addition of preparation work as a non-assurance service also provides another avenue for firms to provide the services previously provided under the umbrella of compilation services. The Sunset staff also recommended that the Board implement rules to ensure that non-members of TSCPA pay the same administrative fees as members, which would mean that peer review fees would need to be adjusted accordingly.
One other recommendation from the Sunset staff is to require fingerprint-based criminal background checks of all licensure applicants and all current CPA license holders as is required of all new licensees and many other professions, including doctors and lawyers in Texas. I’m sure there are many CPAs who wish this didn’t have to happen, but like it or not, such requirements are the norm these days and going through a background check is really not much of an incremental task to ensure the integrity of the profession. If you would like to see a full copy of the TSCPA comment letter, you can find it here.
The Sunset Commission will hold hearings on August 29th and 30th where the staff report related to TSBPA will be discussed. The sunset process will continue with formal recommendations from the Sunset Commission in November and then passing legislation in 2019 to ensure the continuance of TSBPA. Without a state licensing authority such as TSBPA, CPAs would no longer be licensed in Texas, so TSCPA will be working to make sure TSBPA and your CPA license continue during the next legislative session.
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:
- Cost and quality of CPE are no longer directly correlated
- Participants expect just-in-time delivery of CPE topics
- 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.
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?
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.