Canadian audit overseer reports problems and solutions

The Canadian audit oversight body, the Canadian Public Accountability Board, announced Friday that last year they deregistered a small firm in Vancouver (which has since gone out of business) and prevented three other small firms from accepting new client due to deficiencies in their audits discovered upon inspection.

My initial thought was, these small firms have public company clients? The CPAB is charged with overseeing only firms that audit public companies, therefore I guess they must. Good on them. Generally public companies choose auditors with more expertise on board that a partner or two and a handful of staff. This is because of their often complex accounting needs and the greater security that comes with a firm that can take on higher liability.

CPAB said yesterday it reviewed 121 audits performed by Canada’s six largest accounting firms last year, and found five cases where the work was so deficient that the companies involved had to correct or restate their reported financial results.

Another nine of the files “had serious deficiencies” in the work done, but did not require restatements. In each case, the audit firm was required to do more work on the file or improve its documentation.

Overall the oversight board believes documentation is the biggest area of improvement for audit firms. We just don’t document our thought processes in enough detail to satisfy them, in particular when we consult internally on complicated matters or judgment calls. I know my firm has recently rolled out what they’re calling the new “documentation standards”, which address this concerns.

I’d like to have a file that I worked on examined by the CPAB just to see whether my work is up to snuff. Something tells me it’ll happen sooner or later!


Blogs can be important marketing tools

Originally published in The Bottom Line February 2007 print edition only.

Blogs are all about having more personal and meaningful conversations with an audience about a topic. When you’re an accountant or accounting firm, blogs are a way to reach people interested in your expertise, whether they’re fellow accountants interested in discussing the profession or potential clients looking for an accountant with an aptitude for technology and an ability to stay on top of the trends.

Why should an accountant blog?

If you’ve got something to say about accounting or, even better, a specific area of competency within the industry, having a blog will help establish your name online, and in a profession such as public accounting, getting your own name out there is important for your career. “Personal PR” should involve offline networking as well as an online component. Blogging will allow you to meet like-minded accountants from around the world and gain useful contacts.

You have to enjoy writing to be able to blog productively and to come up with enough interesting topics every week – regular updates are critical to growing blog readership. Once a week seems to be the accepted minimum frequency, but there are some prolific bloggers making several posts per day.

Blogging can be part personal release, part professional development. Blogging is a creative outlet, where you can explore new ideas and argue constructively with other bloggers about the industry. Blogging will also allow you to differentiate yourself from the pack, since it is still a relatively new medium and certainly has not been embraced yet by the accounting mainstream. Current CFOs don’t read blogs much (yet), but future CFOs do.

Blogging about accounting will allow you to keep up on the hot topics in the industry in a more meaningful way. In 2006, options backdating in the US and income trusts in Canada have been on the front burners of accountant blogs. Being able to weigh in on those topics with some credibility allows a blogger to have a level of influence that otherwise would go untapped.

As a Canadian, an accountant blogger can make Canada’s voice heard on an international scale. This will become even more important as we move to international accounting standards. Educating others about the situation in Canada with income trusts could help other countries better deal with the problems flow-through entities can present.

Why should an accounting firm have a blog?

It’s a bit different if you’re blogging about your firm. In this case, you’re selling something a little more blatantly than if you’re blogging independently.

It is a good idea for all accounting firms to embrace blogs as a way of keeping in contact with clients and providing relevant accounting and tax news and firm information. You can also communicate with clients more frequently by blogging every other day on a new topic of interest, and speak to them on a more personal level compared to more traditional forms of communication like periodic informational leaflets.

Firms can focus their blogs on different topics, for example, a corporate tax blog, a personal finance blog, and an audit and assurance blog. Breaking up the audience into segments like this will increase the overall exposure of the firm in search results.

Search engines, and especially Google, have caught on to the blog phenomenon and will now crawl frequently updated blogs at least daily, which will have a dramatic impact on your firm showing up in search results when a potential client searches for a topic you’ve blogged about. Imagine a potential client searching for information about the changes to dividend tax, and finding a recent blog post that highlights your firm’s expertise on the subject.

Blogs can even be used purely internally to share news within the firm and encourage dialogue about firm policies. Engaging accountants in your firm in dialogue at all levels will help your firm retain the top talent, as it will encourage them to take a more active role in the firm at earlier stages of their development.

How should an accountant blog?

Take advantage of the nature of the medium to have a more personal conversation with your readers. Engage them in the discussion and encourage community. A blog really isn’t a blog without the ability of readers to post comments, and blogs that do not allow comments are isolated from the blogosphere, which is critical to building traffic and a reputation.

Most important is to let your personality shine through in your writing, because accountants already have a reputation for being about as interesting as a block of cheese. Be a real person, and speak from the heart. Have opinions, and explore them. Although you are selling yourself and your ideas, being a phony will never work since the next blog is just a mouse click away.

Resist the temptation to slap some ads on your blog. You won’t make anything from them until you’ve built a solid readership, and building that readership will be harder if you’ve got ads framing your writing. A professional, hosted blog can cost as little as $15/month, and you should consider it an investment in your career or firm.

That being said, you can easily start blogging right away and it will cost you nothing at all except your time using any one of a variety of free blog hosting services, such as Google’s Blogger ( It will allow you to get your feet wet and experience what blogging is all about on a trial basis.

Blogs are not a fad, they are here to stay and will grow and evolve as the tools become more sophisticated. An accountant or accounting firm has a lot – of potential clients and contacts – to lose by ignoring the phenomenon. So take advantage of this new method of communication to build your network of clients and contacts!


Quit today, get hired back tomorrow

A recent story by the AP highlighted an interesting byproduct of the CA shortage – employees who leave their job at accounting firms are being actively recruited back to rejoin their former firm. Seems employers have realized that more often than not in the accounting business employees leave to explore different career options but leave the door open to returning to public practice.

Audit senior manager Danica Dilligard left Ernst & Young LLP in 2003 after six years with the company. E&Y’s courtship began almost immediately. The E&Y partners she’d worked with called, saying, “Just wanted to make sure you’re happy. There’s always a home for you here.” She was invited to E&Y golf outings, where she played in a foursome with the partners. She was included in professional certification courses and welcomed at networking events.

Granted this is a senior manager we’re talking about, but I have seen it trickling down to just about every level, down to the lowliest junior. It’s smart though.


The case for digitized perm files

Having lugged around three thick files representing the full permanent file for an audit client for the past few weeks, I’ve come to the conclusion that my firm needs to consider digitizing these things.

Perm files for accountants consist of client documents that carry forward year to year. For example, engagement letters are good for three years before they need to be updated and signed the client again, so a copy goes in the perm file for that time. Loan and lease agreements and their related payment schedules straddle multiple periods, as do rebate/royalty/license agreements. Articles of incorporation or amalgamation, and anything to do with share purchases and sales.

There’s no good reason to continue to keep physical copies of all these documents, rather than storing them in PDF or similar format and printing them when a hard copy is required (if ever).

The advantages are many:

  • Cheaper to store
  • Can easily be reprinted if hard copy is ever required
  • Increased mobility due to weight savings and digital format
  • Backups are simple and easy to do frequently
  • More secure storage on protected hard drives
  • Searchable (becomes really helpful as the file gains documents)

The same can basically be said for digitizing whole work paper files each year, but there are still situations where having a physical copy with work done directly on it is needed. I think tablets could be useful in ushering out the era of paper-based files, but who knows when the big firms will start to use them.

How far away from a truly paperless client file system is your firm?


That quaint value pricing fad

It’s all the rage these days on accounting blogs – value-based pricing. You’ll see it everywhere, hip accountants (Who’s a hipper accountant than one who blogs? One who blogs about value pricing!) posting missives decrying the historical basis of hourly billing and extolling the virtues of pricing based on value.

What value pricing means to them, is that we should charge for our services based on a basically intuitive notion of the “value” we’ve provided. Sometimes that value is quantifiable, when you identify cost savings the client would not have come up with on their own. (These poor clients, they’re a hapless bunch to the value pricing gang.)

But most of the time it’s like pulling a number out of thin air. What’s the value of creditor-proofing? Is the value the money you save the company that would’ve gone to the creditors? How about due diligence? Surely a percentage of the sale price is the value of that!

You see, value is in the eye of the beholder. Clients will have a different value attached to the services provided than the provider does – it’s inevitable. How about advising a client against a tax plan that could potentially draw the attention of the CRA? (Aside: CRA is the Canada Revenue Agency, our IRS.) If advice is heeded and the attention diverted, where is the value? The amount the client would’ve had to pay after a tax audit?

In most cases (possibly not with the Big Four, I’ll have to consult with my friends one that one) there’s already value pricing in effect. It’s called the “fee quote.” Many of our clients – actually most – request and get from us a quote at the start of whatever work we’re doing for them, typically audits, of how much the bill is going to be. In this way, the “value” of the service to be provided is agreed upon. Isn’t this a better way to do things than generating a figure to represent the value created at the end of the job?

If the job turns out to be more difficult than forecasted, we’ll usually sit down with the client and explain what sort of extra work we’re having to do and why we need to do it. We provide an itemized list of the extra work and the extra time it required. Right the value pricing gang is choking on the bit: “Extra time? Value isn’t based on time! The billable hour is evil!”

Any way you swing it, the fee quote is the type of value pricing that both clients and professional service providers prefer, because it sets expectations at the beginning of the work and it doesn’t expose those despicable timesheets to the client. And timesheets are still very useful in determining the cost to the firm of an audit.