The Industry Accountant's Intelligence Briefing: Helpful Hints from the Trenches

AUTHOR

FOREWORD

A Must Read for Entry to Executive Level Accounting Professionals!!!

Ifound that Joe does an excellent job on drawing from both his personal and professional experiences to demonstrate the potential pitfalls that accounting and finance professionals encounter. I have known Joe both personally and professionally for more than 30 years and in this time, I have seen him grow and develop into a highly regarded finance professional, father, husband, mentor, and friend.

In the time I have known Joe; I have never known him for taking the easy road. This book demonstrates those obstacles and teachable moments that he worked through. Joe uses his and others’ failures to continue to develop his core competencies as a finance professional and shares many of those experiences with us throughout this book.

Joe talks about the traps accounting professionals sometimes fall into, whether from not proofing our documents, tic and tying results, reviewing subordinate’s work and improperly communicating, and how those escapes can lead to career stalling results.

What I found most useful in the text, is that even after 25 years of continuous growth and personal development, there are many areas where I have either taken short cuts, not read the latest pronouncements, not validated results, or simply did not proof an email prior to sending, which may have led to mistakes that made it out to decision makers and prevented me from getting to a much desired promotion.

Finally Joe explains that we should never take for granted the accuracy of ours or others’ work, and that attention to detail is paramount to our profession. There are many examples described in the book which illustrate, the potential ramifications, career hurdles, and great personal peril that we knowingly or unknowingly put ourselves in.

Again this book is a must read for any accounting or finance professional, and one you will refer back to over and over again.

Jeffrey Coleman

Senior Accounting/Finance Professional

Mendon Massachusetts

INTRODUCTION

What is this book for? The Industry Accountant’s Intelligence Briefing is the consolidation of several veteran accountants’ experiences. It provides comprehensive understanding of common accountant mistakes and methods to attain accuracy so you can avoid chaos at your organization. While the premise of this book is simple, the simple problems that cause the most trouble. This book is not about accounting mistakes in areas such as revenue recognition or accounting for income taxes, and it is not about fraud. It is about honest accountant mistakes that plague accounting and finance professionals (i.e., accountants), including preparation, review, communication, self-awareness, and spreadsheet mistakes.

This book helps experienced accountants (who have likely made most of the mistakes listed here) teach inexperienced accountants the mistake risks before a devastating mistake occurs. There are no prerequisites. Accountants who apply the book’s concepts will reduce mistakes, better understand and interact with the accounting world, decrease work-related stress, accelerate their climb up the corporate ladder, and increase earnings throughout the rest of their careers. It provides valuable information for corporate financial executives at the top and entry-level accountants alike. Even recent graduates entering the workforce and accounting majors can use this intelligence briefing on their internships and first accounting jobs.

There are many other excellent solutions-oriented accounting books that require coordination among many people and departments. This book is uniquely focused on teaching the individual accountant to catch their own mistakes and prevent their subordinates’ mistakes. This makes all the concepts immediately applicable. By focusing on scenario planning, accountants will be prepared for a multitude of inevitable challenges they will face. This will allow them to perform at a high level and be in position to climb the corporate ladder quicker.

THE JOURNEY OF WRITING IT

For approximately twenty-five years, I have worked as a certified public accountant (CPA) in various capacities. The one common denominator of the wide variety roles I’ve filled is the presence of human mistakes. While the daily operations of accountants are different, department success or failure lies in the whole staff’s execution of decisions made at the top.

Decision makers at the top must count on the performance of the entire staff, from the entry-level to the highly skilled. Yet, well-intended accountants at all levels consistently make poorly timed, simple mistakes. Handling the ensuing mitigation and damage control internally wastes valuable department time and energy, and it costs considerably more if outside auditors are involved. These kinds of avoidable distractions negatively impact the promotional trajectory of the culpable accountants and may also negatively impact their bosses.

At the twenty-year point of my career, my title was senior manager of SEC reporting and compliance. In SEC reporting, post-close adjustments cause undesirable redos throughout the draft 10-K or 10-Q (10-K/Q)

GATHERING INTELLIGENCE

In an attempt to find a solution, I routinely searched the internet for: (i) common accountant mistakes, (ii) when they tend to occur, and (iii) methods to avoid them. I found plenty of information on accounting fraud and tips for small accounting firms and small business. However, I did not find anything geared toward accountants working in industry in corporate America. Here are some of the topics I was interested in:

Surprise requests for ad hoc projects under tight time constraints.

Preparing an internal management report with various schedules and commentary.

Handling review comments and updating a master document.

Resolving disagreements between headquarter accountants and divisional accountants.

An intelligence briefing for accountants who just received promotions (i.e., from manager to director, director to controller, controller to CFO, etc.)

I decided to study post-close adjustments to identify the root cause. Rather than limiting my research to post-close adjustments, I started tracking every mistake I observed accountants make. The list included material and immaterial mistakes made by controllers, staff, financial planning and analysis (FP&A) professionals, and other accountants.

During the four-year timeframe that I tracked mistakes, I changed companies twice. During that time, I was able to observe a myriad of accountants working for multiple companies. This included six acquisitions, one divestiture, and three systems conversions. The ability to work with the local accounting teams in most of these integration and divestiture efforts provided key observation opportunities. My data on accountant mistakes grew massively. I drilled the data down to more precisely classify all categories of accountant mistakes. If there was a spreadsheet mistake, I was not content with simply classifying it as a spreadsheet mistake. Rather, I drilled down to find the root cause. I even started to document and classify communication disconnect mistakes. I did not know it then, but this evolving list started the journey resulting in this book.

At the 2010 Trine University graduation commencement, Bobby Knight, retired NCAA basketball coach, said the following:

"I learned very quickly that the way to win is eliminating the reasons why you lose. You do not win taking bad shots. You do not win throwing the ball away. You do not win by not getting to the free-throw line. You win because you do those things that enable you to do so. You do them well and it’s even more important to eliminate the reasons why you do not win, such as being late, not being precise with an explanation, and not being prepared.

The second thing is preparation. Preparation is the key to victory in any game that you are playing. The prepared people win one helluva lot more than the unprepared people. You can never spend too much time on preparation. The will to prepare to win is far more important than the will to win."

Within this same spirit, I set out to provide accounting and finance professionals the root-cause intelligence to eliminate numerous types of mistakes.

COLLECTING MORE DATA SOURCES

My data encompassed only my own observations, and I wanted a more complete picture. I broadened my data sources by interviewing accountants at all levels, including staff accountants, cost accountants, senior accountants, managers, directors, controllers, CFOs, auditors, FP&A professionals, and tax professionals, to name a few.

Over a four-year period, I interviewed over a hundred accounting and finance professionals. Their input gave me insight into the most common accountant mistakes occurring throughout corporate America. In just about every case, the mistakes interviewees reported in other companies were already present on my evolving list. It was clear that there were more common accountant mistakes than many would think. The responses I received were very interesting:

Approximately 25 percent of the time, interviewees reported that an accountant’s inattention to detail caused the most mistakes. Examples include: not ticking and tying, not adding check figures to spreadsheets, typos, not proofreading emails for spelling and grammar, etc.

Approximately 25 percent of the time, interviewees reported that accountants being too focused on details and failing to step back and look at the big picture caused the most mistakes. Examples include: correct calculations without useful context, failure to clarify specifications, failure to consult a subject matter expert (SME), not being plugged into dynamic changes in the business, etc.

Another 25 percent of the time, the respondents mentioned that spread- sheet mistakes were the most common accountant mistakes. These were typically caused by: linking to the wrong cells, hard coding when formulas are better suited, and bad labeling, among others.

The remaining 25 percent covered a hodgepodge of other kinds of mistakes, such as: version control issues, being intimidated by operations personnel, not providing frequent enough status updates, etc.

In the summer of 2011, my career plateaued, so I started working with an executive coach to get new insights on relationship building and communications. These insights have bolstered my career and helped me identify communication errors. Since then, I climbed the corporate ladder from senior manager to director to corporate controller between 2011 and 2014.

The combination of intelligence compiled from observation, interviews, executive coaching, and twenty-five years of accounting experience is all wrapped up into this book. It is written for smart, hard-working, and ambitious accounting professionals. It presents preparation and review, spreadsheet, communication, and self-awareness mistakes that accountants are most likely to make. In it, I describe each mistake, common causes, and provide methods to attain accuracy. This book is indispensable for individual accountant use and self-growth as well as a teaching tool.

CHAPTER 1

Defining Accountant Mistakes

Most accountants feel a sense of accomplishment when they turn work in for review. They invest much into their work and want it to be correct. No accountant wants their work to include a mistake or, worse, multiple mistakes. Unfortunately, it happens all the time, raising the following types of questions:

Why did I make these mistakes?

Why didn’t I catch my mistakes when I double-checked my work before turning it in?

How can I avoid making these same mistakes in the future?

When reviewing my subordinate’s work, why didn’t I catch the mistakes?

How can I better train my subordinates so they do not make easily preventable mistakes?

How can I change the process to result in mistake-proof results?

Accountant mistakes are actions by an accountant or their subordinates that slow their promotional trajectory, lead to a demotion, or cause termination. Accountant mistakes fall in four main categories:

Mistakes in preparation, review, or delivery (PRD) of a work product.

Spreadsheet mistakes.

Communication mistakes.

Self-awareness mistakes.

Most organizations do not train new hires on these concepts. Accountants often learn them after they or their subordinates make a mistake. Unfortunately, accountants do not always fully understand the root cause of their mistakes and are likely to make the same type of mistake again in stressful situations.

The vast majority of mistakes occur where the culpable party had the requisite technical knowledge and experience to get their work correct. Most bosses do not purposely give overly difficult tasks to subordinates without adequate training. If they do, they expect the work will contain some mistakes the first time around. Despite this, accountant mistakes still occur. To avoid mistakes, accountants need to do the following:

Understand inherent risks associated with a task or communication activity.

Have methods to prevent mistakes during the preparation phase.

Have methods to catch and correct mistakes during the review phase.

Build relationships and communicate effectively.

WHAT ISN’T AN ACCOUNTANT MISTAKE?

Accountants often confuse differing styles with mistakes and cause themselves unnecessary stress. For example, if an accountant turns in a work product and the reviewer requests it in a different format, this is not a mistake. It’s just a style preference. It’s important that accountants do not interpret changes in style as mistakes. If reviewed work only comes back with change-in-style comments, it usually indicates that calculated amounts were correct and the reviewer merely wants it presented differently. Examples of style comments that are not mistakes include the following:

Presenting a schedule differently (i.e., landscape vs. portrait).

Adding more subtotal rows.

Rearranging the ordering of pages.

Review comments on a qualitative analysis, where the content is accurate but the reviewer wants to word it differently.

Copying someone the boss prefers not to copy on an email (you’ll know better next time).

Sending an email when the boss wants to meet in person.

Accountants should not waste their emotional capital or worry, especially when it comes to style differences. Rather, learn from style comments, adapt, and move on.

THE IMPACT OF MISTAKES

Mistakes have several negative consequences, including:

Reduction of trust in accountants and their subordinates.

Questions about job commitment.

Extra work. It’s more efficient to do work correct the first time.

Reduction of accountants’ credibility to make convincing arguments.

Emotional distractions, which may cause more mistakes. Mistakes can cause an emotional toll on accountants, such as worrying about getting reprimanded, fired, demoted, or removed from consideration for a promotion.

ACCOUNTANT INTENT

The accountant’s intent does not prevent negative perceptions associated with mistakes. Even if the accountant works extra hours, takes on additional responsibilities, means well, and tries hard, mistakes negatively affect executive management opinion, especially impactful mistakes. If management concludes an accountant cannot be trusted to produce accurate work or to effectively manage a process or team, the accountant likely has no promotional path in that organization.

CONSISTENCY

One trait that accountants typically must possess to earn a promotion is consistency. Management views accountants who exhibit consistency more favorably than accountants who accomplish great things but also make impactful mistakes. To succeed, accountants must possess a toolkit of methods to prevent impactful mistakes. A senior-level vice president (VP) and controller of a multibillion dollar corporation told me this:

I would rather have an accountant on my team that gets five field goals (worth fifteen points) than an accountant that gets three touchdowns and two fumbles (worth fifteen points). That’s because I would lose trust in the accountant with the two fumbles. Once I lose trust in someone, I would be reluctant to give that person greater responsibility. On the other hand, if the accountant with five field goals can start generating touchdowns, he or she would put himself/herself in position for a promotion.

TRANSFERRING KNOWLEDGE

The knowledge transfer process from an experienced accountant to an inexperienced accountant can take years. This transfer is not like instantaneously sharing music. Rather, it typically occurs either on a task-by-task basis or after a mistake is caught. Experienced accountants have many lessons to share, but these are usually not organized into a comprehensive and easily transferable manual. As a result, their staff often does not benefit from this knowledge until mistakes need correcting. Of course, the more mistakes subordinates make, the higher the probability that an experienced accountant will miss the mistake during review, resulting in negative ramifications.

ACCOUNTING RISK AND ACCOUNTANT RISK

Accounting risk and accountant risk are different concepts. Accounting risk is typically complex risks inherent in areas such as revenue recognition, income taxes, stock-based compensation, inventory valuation, etc. Also, accounting risk is higher where companies lack effective internal controls. Alternatively, accountant risk occurs when there is any combination of the following:

Lack of effective preparation methods.

Lack of effective review methods.

A poor approach to spreadsheets.

Poor communication skills.

Poor relationship-building skills.

Lack of professional awareness.

Accountants who utilize effective methods to combat the accountant risks they encounter fare better than