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The Great Accounting Debate

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Do you love the concepts of accounting, but just can’t see yourself slaving over tax forms and balance sheets for the rest of your life? Well there might just be hope for you after all and your salvation may come in the form of being an accounting professor. So now you might be saying to yourself, how is teaching about tax forms and balance sheets any better than working on them directly? To answer this question, you don’t need to look any further than this year’s winner of the Accounting Literature Award, Panos Patatoukas, an associate professor at the Haas School of Business at U.C. Berkley.

Professor Patatoukas researches and theorizes about controversial topics in accounting (because, you know, money is always something to argue about). The paper which won the award analyzes a concept called Customer-Base Concentration. Is his paper he discusses a question which has many sides to it: What is better for a business, to have a few very big customers, or very many smaller customers?

Until this paper came out, it seemed as if conventional knowledge dictated that having a diversified customer base was the most reliable approach for a company to take, since no one product line or service in a given company was critically reliant on just a few customers. However, Professor Patatoukas argues that companies that have several large customers (think Procter and Gamble and store chains like Wal-Mart and Target) might benefit from squeezing out inefficiencies in their production models in order to maximize profits from their major purchasers. Professor Patatoukas backs this up by analyzing the stock performance of companies with different customer bases.

So which side of the argument do you fall out on? What other theoretical accounting concepts can you think of? You may have the key to transforming business practices and it can all start with an education in accounting.

Leases

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Big changes are coming to the accounting world. A rule change that was proposed last February is coming into effect this month, and this rule change affects how different kinds of leases are tallied up on corporate balance sheets. But while this rule is making things difficult for accountants, for an accounting student, you may be asking: How many different types of leases could there be?

The rule change affects two different kinds of leases: operating and finance. The biggest difference between these two types of leases is what happens at the end of the lease. In an operating lease, the object being leased returns to the owner of the object. In most finance leases, the object ends up being owned by the lessee, or being purchased at the conclusion.

Another major difference between the two types of lease is the way in which the lessor makes its money. In operating leases, the lessor charges the company more than is required for the lessor to make its own payments on the object. In finance leases, the lessor invest the money received from the lessee, in hopes of making interest on those payments.

From an accounting perspective, operating leases are able to be included in the operating expenses of a company, making them deductible from profits. Finance leases treat the object being leased as if it were owned by the lessee, which prevents the costs associated with the lease from being treated as operating expenses, and instead as an asset.

Want to get a new “lease” on life as an accountant? Give a call to Park Avenue Review today to see how to get started on the path to accounting.

The “Foundation” of the CPA Exam

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The content and makeup of the CPA exam doesn’t come from nowhere. In fact, the work on any given year’s CPA exam begins a year or so prior to being put into the field for test takers. Before any questions are written, the American Institute of CPAs releases what is called the Examination Blueprints for the Uniform CPA Examination. This document is a detailed accounting (no pun intended) of how each section of each of the four CPA exams should be laid out. The blueprint helps make sure that the tests properly assess the candidate’s abilities in remembering, understanding, applying, analyzing, and evaluating the accounting concepts he or she had been studying until now.

Another aspect that has to be considered when it comes to testing time is what new regulations in accounting had been promoted, proposed, and adopted in the interim between testing sessions. The American Institute of CPAs sets guidelines around when testing around new regulations from the FASB and other regulating bodies become eligible for testing on the exam.

Finally, AICPA relies on an army of volunteers to create questions in the formats you are all familiar with by now, multiple choice, task-based simulations, and written communication. These CPAs draw from their real-life experiences to generate the questions one sees on the exams, so you can be sure that what you are studying for now will be relevant to you later.

Park Avenue Review extensively reviews each set of Examination Blueprints each time they are released and keeps track of which new regulations are going to be included in each exam. We then incorporate those changes into our training material so that our students are getting the most recent and most accurate level of preparation for that year’s exam. Learn more about our CPA exam review courses by calling (800) 465 – 7095.

Is Accounting Really All Work and No Play?

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One of the major concerns we hear in our training courses is that compared to many other professions, the accounting profession is particularly demanding. First, it requires several years of training, then you are required to put in long hours, especially if you are part of a firm which offers the opportunity to eventually become partner, and finally, if you are a tax accountant, say goodbye to any extra time between January 1, and April 15. But some recent news out of the field might indicate that changes are on their way.

Let’s approach each of the concerns in order. A recent article in Accounting Today speaks of an interesting trend taking place at Point Park University in Pittsburgh, Penn. There, it is becoming increasingly common to double major in both dance and accounting. The article says there seems to be multiple thought processes taking place among these students. First, they find that having a creative outlet can improve their ability to solve complicated problems, such as those they encounter in their accounting classes. Second, even though many of them expect to dance professionally following college, many of them admit that they probably won’t be able to retire off of the money they earn as performers. Therefore, being able to fall back on accounting as a possible career following their dancing years is an attractive solution. Alternatively, many of them plan on opening dancing schools and plan on leveraging their business knowledge from their accounting classes to maximize their profits.

Another article from the Virginia-based Daily Press describes some of the initiatives local and national accounting firms are undertaking to attract and retain millennial talent. These programs include offering bonuses to attract senior associates, and part-time partner track programs, to allow for a more balanced split between work and life needs.

Finally, even partners have a crazed time of year if they are focused on preparing tax returns for individuals and corporations. Another Accounting Today article discusses the tactics tax accountants use to relax during tax season. The accountants they interviewed didn’t have a lot of great insight, but all of them encouraged tax accountants to take a break whenever they could. This could be anything from getting your nails done, to doing a few jumping jacks. As we saw in our first story, getting up and moving around can be a great way to come to a solution for the tough problems tax accountants face multiple times daily during tax season.

Basic Accounting Terms: Assets

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A few weeks ago, we began covering basic accounting terms that can be useful while preparing for accounting exams. Last time we covered bad debt. This time we will be covering assets.

There are two types of assets, fixed and current, and both are important in determining the present value of a company, as both need to appear on a balance sheet when reporting on earnings. To begin with, assets are anything that a company (or an individual) owns. In more detail, fixed assets are generally tangible items, but not thing which are the company’s product, so essentially the building the company owns, or equipment they use to manufacture their product. They are fixed in the sense that they are meant to last for a while.

Current assets on the other hand are monies that are meant to be processed as part of the company operating. Accounts receivable, for example, would be an example of a current asset. If the company sells a product, this too would be considered a current asset when still in possession of the company.

Fixed assets actually play an important role at both the macro, and the micro level. In the investment world, fixed assets developed by a country (think roads, stadiums, etc.) are used as a barometer for how their economy is performing. In an April article, increases in China’s fixed assets are sited as an indicator that their economy is stabilizing.

On the other hand, sometimes the word “fixed” is used quite literally. In a suit by General Motors over the loans provided to the company to bail them out as part of the 2009 financial crisis, General Motors disputes the entire validity of one of their loans based on the fact that some items, fixed assets, were not part of the security for the loan. Part of the trial actual debates whether or not equipment which is bolted down to the floor are “fixed” or not.

So, while on the surface, the different kinds of assets may not seem similar, often times fully understanding a term can lead to very different outcomes.

Park Avenue Review Leader Teaches Entrepreneurship in Qatar

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Dr. Stephani Mason, co-founder of Park Avenue Review, just spent the past several days in Qatar, lecturing about the differences between becoming an entrepreneur or pursuing an MBA. In conjunction with the Sheikh Faisal Center for Entrepreneurship in the Middle East at DePaul University, Dr. Mason explained to the room full of students that the choice depends on one’s ambitions.

Going the MBA route often leads to a very predictable career path, first management, then corporate leadership. This tried and true model has benefits such as stability, career advancement, and the ability to specialize in one particular area of business development, if one so desires. The downsides can be feeling as if you are stuck in a holding pattern if your career doesn’t advance as fast as you’d like, monotony as the challenges in your role repeat themselves annually, and the inability to quickly “pivot” into another business category if you company or employer begins to falter.

On the other hand, entrepreneurship can make life very exciting, especially if you’re comfortable taking risks and don’t fear failure. Being an entrepreneur allows one to experience all the different parts of a business. Often at the beginning of a new business, the leader is in charge in all aspects from product development to sales to budgeting. Going this route means one can learn a lot in a short amount of time.

Follow @sfcdepaul for more updates about these kinds of classes and more.

Why do the Oscars even need accountants?

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Until Sunday evening, February 26, 2017, just about no one knew that accountants were involved in one of the most glamorous events of the year, the Oscars. Then Warren Beatty announced the incorrect winner for Best Picture and accounting got thrown in the spotlight. This is because for decades, the Oscars trusted PricewaterhouseCoopers, one of the largest accounting firms in the world, with tallying the votes and managing the announcement of the winners.

But why are accountants even involved in what would seem to be an event that is so far from the world of accounting?

There are a few reasons why accountants need to be involved in such an important event (at least one that is important for the entertainment business). First, in an industry where wheeling and dealing critical to getting ahead, it is important to make sure that something which can easily make or break someone’s career is conducted fairly. For many, hiring a third party is one way of achieving this.

Second, keep in mind that PwC is much more than just an accounting firm, as they also have large consultancy and advisement groups. While Hollywood is the home base for much of the film industry, it is really quite a disparate group, and everyone is not centrally located, nor easily reachable during the voting period. Overcoming these challenges is a perfect task for consultants.

Finally, it is easy enough to say that it is just like many other familiar relationships. There is something to be gained for each party. The Oscars are able to say that they conducted a fair vote, and PwC can advertise that they are the firm the Oscars trust with handling the vote.

So, while accounting isn’t always the most glamorous of professions, there is certainly the opportunity to be involved in glamorous events. Just make sure that you double check your numbers (or your cue cards) before handing out the final product.

Bad Debts in the Real World

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“Bad Debt” is one of the most basic concepts in accounting. This term refers to debts that a company no longer expect to collect, and has written off to their income statement as an expense. Some say that bad debt is just a part of doing business, so businesses that do work on credit should factor into their finances that a portion of their outstanding debts will be noncollectable. But in the real world, even the best planning around bad debts can still prove out to be wrong and have serious repercussions for a company.

In fact, bad debt has spawned an entire industry in which companies buy bad debt from other companies in hope that they will collect on some of them and then take a portion of the payment as fees before passing along the rest of the funds to the company the from which the debt was purchased. These kinds of companies are currently at the center of a US Supreme Court case, in which it is being decided if these collection companies can lawfully submit claims for debts in bankruptcy court, even if the statute of limitations on the debt has run out. At issue is whether or not federal regulations around bankruptcy can influence how bankruptcy happens at the state level, where most bankruptcy proceedings take place. (Forbes)

For many companies, reducing the percentage of bad debt is a great way to boost the balance sheet. As a CPA, you can help companies understand which debt is the most lucrative to pursue, and then properly document it as part of the company’s annual filings.

Where do all these accounting rules come from?

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One major role that a CPA could have in a company is to prepare the financial reports for a company. If the company you work for is publicly traded in the United States, you will have to follow what is called “SFAC” (Statement of Financial Accounting Concepts) when preparing the financial statements. But where did SFAC come from?

Rules surrounding SFAC and many other accounting concepts come from the Financial Accounting Standards Board, “a seven-member independent board consisting of accounting professionals who establish and communicate standards of financial accounting and reporting in the United States” (Investopedia). The rules generated by this board are adopted by the Securities and Exchange Commission to standardize how financial reporting takes place. Currently, the FASB is comprised of members with experience in many different sectors, including career accountants, former SEC employees, and academics who teach accounting.

Becoming part of the FASB is a long journey, but it can be very reassuring to know that the current members all started off taking CPA exams as well. Accounting can offer many different career paths and the ability to influence the entire field is definitely there.

 

Read more:

Financial Accounting Standards Board – FASB Definition | Investopedia

https://www.iasplus.com/en-us/resources/faf/fasb-board-membership

When is cash not really cash?

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The future of currency can be an interesting challenge for a future accountant. In the past week alone, there have been several major developments in regards to the intersection between accounting a digital currency called “Bitcoin”. For those who are unfamiliar with Bitcoin, it is essentially online cash, or funds that can be used to make purchases either online or in the real world without compromising one’s identity as is necessary when paying with a credit card. Transactions are verified by a network of computers which tracks which bitcoins are attributed to which account.

For accountants, bitcoins present issues on several levels. Primarily, the debate centers around whether or not digital currencies can be classified as “cash” in the accounting process. Furthermore, since the value of online currency can fluctuate widely, many investors hold on to their currency as an investment rather than as money in a bank. This too can conflict with the classification of online currency as cash. Finally, especially as it relates to the International Accounting Standards Board, should online currency be grouped together with other intangible assets or should it be classified as a standalone product?

No matter the outcome of these debates, there is always going to be one group which is going to have the answers sooner than anyone else, and that’s the taxman. This past week, the IRS filed an inquiry with Coinbase asking for account data on their users in order to ascertain if the site is being used to evade taxes. Since taxes are always on the mind of a good accountant, it is important to follow news regarding this subject closely, and to always follow the latest guidance and legal advice of those familiar with these tools. Stay tuned for more updates about accounting and the future.

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