Two types of accountants

A theory on the two types of programmers has parallels in the accounting profession:

There are two “classes” of programmers in the world of software development: I’m going to call them the 20% and the 80%.

The 20% folks are what many would call “alpha” programmers — the leaders, trailblazers, trendsetters, the kind of folks that places like Google and Fog Creek software are obsessed with hiring.

Of course bloggers are 20% folks. Jeff Atwood at Coding Horror expands on the theory in this direction:

I often think we’re wasting our time writing blogs which are largely read by the same 20%. In my experience, there’s precious little trickle-down effect from the alpha programmers to everyone else. And if there is, it takes decades. If you really want to change the software development status quo, if you want to make a difference this year, you have to help us reach outside our insular little group of alpha programmers and effect change in the other 80% of the world.

I think the rule applies in all areas of life. Roughly 20% are the go-getters, and they’ve got the drive and ambition to innovate in their careers and their lives and effect change.

There are those who are curious and always seeking to learn new things, and there are those content to scrape by with the minimum effort required. What do you think? Is this view overly simplified?

Audits don’t happen randomly

Commissioner and chief executive of the Canadian Revenue Agency reminds us in a story in the Financial Post that there are no random audits in Canada.

If your tax return is selected for audit, the CRA has identified some aspect of your return, be it a deduction claimed or an industry that it is focusing on, for additional scrutiny.

This should be reassuring to the majority of filers, since most people earning a wage have limited deductions available to them, compared to corporations. But should there be some percentage of tax audits selected at random from the entire population?

Cigarettes and the complexity of the tax code

Sometimes people wonder why the legislation surrounding various taxes is so complex, given the relatively straight-forward nature of those taxes. The Tax Foundation provides a telling example in a recent post about the definition of a cigarette:

Cigarettes are taxed in New Mexico, as everywhere else, and at a pretty hefty rate. As the tax goes higher and higher, there’s more of an incentive to get out of it, and one way is to alter cigarettes so they no longer fall under the state’s tax code definition. When the state catches on, it adds more to the definition to encompass the new products, and the cycle then repeats itself.

So now, New Mexico’s definition of cigarette is either a roll of tobacco wrapped in paper, or a roll of tobacco wrapped in a substance containing tobacco, weighing no more than 3 pounds per 1,000 stocks, and having three or more of the following characteristics:

  1. it has a typical cigarette size and shape;
  2. it has a cellulose acetate or other cigarette-type integrated filter;
  3. it has a filler primarily consisting of flue-cured, burley, oriental, or unfermented tobaccos or has a filler material yielding the smoking characteristics of any of those tobaccos;
  4. it has a filler, binder and wrapper that together contain three percent or more by weight of total reducing sugars and four percent or less by weight of non-reducing sugars;
  5. it is sold in soft packs, hard packs, flip-top boxes, clam shells, or other cigarette-type packages;
  6. it is sold in a package that labels the product as a cigarette or a cigarette substitute, or in a package that does not clearly and conspicuously declare that the product is a cigar;
  7. it is available for sale in packages of five, ten, twenty or twenty-five sticks;
  8. it is available for sale in cartons of ten packages;
  9. it is marketed or advertised to consumers as a cigarette or cigarette substitute.

There are entire sections of the Canadian Income Tax Act devoted to definitions like this. Usually there is a Definitions subsection where certain terms specifically related to a given section are defined.

Is it ethical for corporations or individuals to try to produce what is essentially a cigarette that is outside the letter of the law but clearly violates the spirit? Clearly no. Unfortunately I think principles-based tax law is a non-starter, but I’m a big believer in principles-based GAAP as the tool we professionals need to use to accurately reflect economic reality.

(By the way, the ‘P’ in GAAP stands for principles. How can we have principles which are not principles-based, you might wonder. Well, that’s a question for the FASB, Canada’s AcSB, and the IASB!)

Enron chronicle provides some holiday reading

I have been on vacation for the last half of this month, and that along with Christmas has resulted in much less activity on this blog than is normally seen.

Additionally, I have been immersed in a great book on the Enron scandal, titled “The Smartest Guys In the Room: The Amazing Rise and Scandalous Fall of Enron.”

The book was originally published in 2003, but was recently republished with an extra chapter. “Now includes the Enron trial and the death of Ken Lay,” the cover advertises.

I’m a little surprised I haven’t read a book on Enron until this point, given how fascinating the fraud is to me. I thoroughly enjoyed it.

The book is accessibly written. You don’t have to be an auditor to undeerstand what caused Enron to implod. That sort of disappointed me – the book didn’t go into enough detail for my liking. But they know their audience, which isn’t exclusively the audit profession.

I was hoping to see some debits and credits and maybe even a T-account or two, dissecting each transaction of each special-purpose entity (SPE) in painstaking detail, but I was out of luck.

I won’t go into too much more detail at this point, as I will pull out some of the more memorable passages in future posts and discuss them there.

Suffice it to say the book was awesome and I recommend it to everyone, not just auditors.

Experience requirement completion date nears

Earlier this month I received a letter from the governing body of my profession in this province, the ICAO. I wasn’t expecting it so naturally I was pretty curious. It turned out to be great news:

“According to our records, your estimated completion date of the 30-month practical experience requirement is 12/7/2007.”

ICAO envelopeEven before I had opened the letter I was treated to the new CA branding on the envelope. Not only that but the new CA logo is the only thing on the front of the envelope. The return address information is printed on the back flap at the opposite end of the envelope. Pretty cool twist for something as mundane as a business envelope.

I may have been done on December 7th, but I won’t know for sure until my firm submits the attached form with all my hours. 625 auditing hours, 100 review hours, 1,250 total assurance hours (including those audit and review hours plus other assurance engagements), 100 tax hours, plus elective hours making up no less than 2,500 total hours. I’m certain I’ve met all the hours.

Any leaves of absence taken in excess of those allowable (prescribed by Regulation I) will extend your completion date. The allowable leaves of absence are as follows:

  • 8 weeks vacation
  • 5 weeks staff/job training
  • 5 weeks illness/compassionate leave

I did some quick calculations and I’d be surprised if I’d taken more than those amounts off over the 2 2/3 years I’ve been working in public accounting as of the end of this year. But there’s more — any other paid/unpaid leave plus time spent at the SOA and writing the UFE is also added back. 4 weeks for the SOA and 1 week for the UFE.

My best guess is that it will be sometime in mid to late January before I’m clear to put the letters behind my name. The Waiting is the hardest part.