Archives for posts with tag: CPAs

Just when I thought I had heard almost everything, a group of over 40 year olds are suing Price Waterhouse Coppers for not hiring older workers! The lawsuit alleges that PWC discriminates against older applicants by focusing on college campus recruiting and trying to create a workplace “where youth is highly valued”, according to news articles.

Having grown up in business in what we now call a Big 4 CPA firm, I do have a couple thoughts to offer these disadvantaged older workers:

Although you may be attracted to the initial starting salary of up to $60,000, you better be prepared to work your behind off! CPA firms still average 70 to 80 hours a week, especially in the “busy” season from late fall until spring. Some CPA consultants work these long hours year round depending on the client and projects to which they are assigned. If you take the $60,000 and divide it by sixty plus hours a week you are really earning closer to $35-40,000 a year. And you have very little personal time! It is common to work late at night and six day weeks.

Starting jobs in the professions such as accounting and law have always been like this. There has been some effort, in recent years, to make them less exhausting and more family friendly, but based on the chat sites I reviewed, things have not improved much. This is why these starting positions are a young person’s game. Right out of college, with no spouse, and no family, this makes sense.

CPA and law firms also have very strict hiring criteria. The better firms only hire the best  people from the best colleges. And, yes, they are mostly all young, recent college or MBA graduates. And they all report to young, bright people who may be in their mid 20’s who report to young, bright people who are in their late 20’s. This is the age old formula and it works. By the time a young professional hits age 30, most have left public accounting for a more stable, and family friendly job. The few that remain into their 30s and 40s have been well indoctrinated into the firm’s culture, which is also very hard to do with an older worker starting out.

So, believe me when I tell the older workers, you do not want a starting job with a CPA firm! The money may sound good but it is not a lifestyle that works for those over age 40!

 

The Wall Street Journal recently ran a story about the government’s watchdog, the SEC, having concerns about the quality of audit reports issued by one of the Big Four CPA firms, KPMG. This resulted in an indictment of several people. What the government noted was poor audit quality based on their review. Big 4 CPA firms have also been charged with fraud in other high-profile cases. In fact, government test audits of all the Big Four firm’s work show that about 25% of all audits were what they call, “deficient”.

The issue is that investors rely on the outside auditors to check the accuracy of a firm’s financial reports. The SEC and the federal government has focused on this since the bankruptcies and accounting scandals involving Enron and World-Com in the early 2000s. And the Big Four CPA firms audit almost all the public firms in the Standard and Poor’s 500. So, this is not a good thing, no matter how you look at it.

As a former CPA in public accounting and a former CFO who worked with auditors for  decades, I have some thoughts for the Big Four CPA firms.

Training is first. Accounting firms send their new staff to a couple week training program. This is nowhere near enough. When I was an entry level staff person, I understood very little about internal controls, proper procedures, and really the whole auditing process. It took into my third or fourth year before I felt comfortable. More hands on training ever few months would have helped even though this is expensive.

Supervision is next. CPA firms have a very clear hierarchy of command where each layer above supervises and reviews the work of those below. The Senior on an audit might have a handful of staff reporting to them which does not sound unreasonable. But the Senior auditor also has work only they can do, like taxes, and rarely has enough time to supervise and help train their staff. Managers supervise Seniors but a bunch of them at once on often very different types of audits. More time needs to be allocated for review and supervision so that audit quality can improve.

Finally, we need a clear and mutually agreed understanding of what an audit is and what it is not. Audits are not meant to detect fraud yet many people believe they are. If fraud is found, however, it must be reported. As the government completes all these test audits perhaps the expectations versus the deliverables of an audit can become less fuzzy.  We also have whole new issues these days with technology,  cyber crimes and data security that did not exist that long ago. The responsibility of the auditor needs to be re-defined.

All of these items will take more audit time and thus audits will cost more. That will  become a reality. Historically, audit clients put constant pressure on their auditors to lower their fee. Going forward, if we want to improve audit quality and significantly reduce deficient work, audits will cost more. The investing public deserves it.

The Wall Street Journal had an article recently about the former CEO of the “doomed brokerage firm” MF Global testifying that his firm relied on their auditors, Pricewaterhouse Coopers to “make sure its finances were accurate.”

The former CEO is Jon Corzine, who was the former Governor of New Jersey and before that the former head of that famed Wall Street firm, Goldman Sachs. Mr. Corzine agreed to pay a $5 million fine to settle his role in MF Global’s collapse. For a person whose net worth is estimated at around $300 million, this is not even a slap on the wrist.

A number of articles from Vanity Fair to the New York Times have been written about the collapse of MF Global, and the fact that neither Mr. Corzine or any other officers or directors were charged with a crime. It has been suggested, by others, that it may be due to the fact that Mr. Corzine was a major contributor to President Obama and the Democratic party. But I will not venture into politics, but rather just stay with business.

As an investment banker with Goldman Sachs, Mr. Corzine certainly understood what role auditors perform for all his many clients. The role of an outside auditor or CPA firm is to examine the books and records of a firm and issue an opinion on the fairness of the financial statements taken as a whole. To perform that work, the outside CPAs rely, in large part, on the expertise of the firm’s Board and senior management. Others have stated that it was Mr. Corzine and his team that made the huge bets, with their clients’ money, on sovereign debt instruments that caused his firm to fail. And, in this case, the CPAs were relying on the former head of Goldman Sachs, a man that Joe Biden called “the smartest guy he knows, in terms of the economy and finance.” (That was not meant as a political comment as I actually like Joe!)

In my book, The Business Zoo, I cite a lesson I learned from investment bankers- “share the pain”- which means all parties to a bad deal should participate in cleaning up the mess. I am guessing that may be what is motivating Mr. Corzine as he is testifies against Pricewaterhouse Coopers or PwC. Poor PwC is having a hard year already with the Oscars and now this $3 billion lawsuit.

Jon Corzine and his team took a huge gamble with their clients’ money and lost. The PwC auditors  provided his firm with accounting advice not investment advice. Boards of Directors, the Chairman/CEO and Senior Management should be the responsible parties when a firm fails.

So, Corzine, the former CEO, pays a nominal fine, but then tries to stick it to anyone else who came near his bad deal. Sometimes, capitalism and our legal system punish the wrong people. Not fair.

News Flash! The Wall Street Journal now reports the lawsuit against PwC was settled out of court for an undisclosed amount. In my opinion, any amount over Mt. Corzine’s meager $5 million fine is still not fair.