New Study Sheds Light on Investor Use of Audited Financial Information

There were many times when, as an auditor of public companies, I questioned if all of my hard work was in vain . Was I being idealistic telling myself that my independent auditing would amount to greater transparency and understanding of by clients' performance by countless investors? A recent study conducted by the Journal of Accountancy found that professional and retail investors have a tendency to rely on financial information included in the MD&A portion of a company's annual report, which is reviewed but not audited by the company's independent auditors. The investors in the study, particularly retail investors, were less likely to reference the audited financial statements or footnotes when making investment decisions.

These results support something we auditors have often suspected: that the copious, detailed, and often technical financial information included in the financial statements and more specifically in the footnotes seems to be resulting in information overload. Retail investors, who generally have less financial knowledge than professional investors, can often get overwhelmed by all of this data that we CPAs have worked so hard to tick and tie down to audited information. Professional investors reference the footnotes occasionally, still preferring other sources of information on which to base their investing decisions. The SEC should consider revising their disclosure requirements to either include greater objectivity and disclosure of information in the MD&A portion of annual reports, or even require an expansion of the independent auditors' report to include such information that is the preferred source of financial information used by investors. The SEC should also review requisite footnote disclosures, perhaps eliminating redundant or less important data, and expanding more frequently referenced data such as the allowance for doubtful accounts footnote.

As auditors, we should not be discouraged, thinking that our independent audit work over our clients' financial statements and footnotes is in vain. Most of this information is the support behind the financial data included in the MD&A portion of an annual report. It would be difficult for a company to fabricate MD&A information given this close relationship. Also, with the introduction of searchable financial filings through the use of XBRL, hopefully audited data will be dissected to a greater extent by financial analysts and investment professionals to make more objective and informed investment decisions on behalf of their clients.

To read an overview of the Journal of Accountancy's study, visit http://www.journalofaccountancy.com/Web/20102682.htm#

Inequality in the Workplace Still Exists

A recent study by Indiana University South Bend found that there is still considerable inequality in the workplace when it comes to use of informal networks for professional advancement. The study evaluated informal networks at one of the nation's largest financial services organizations using a nine-page survey completed by 1,100 employees. Despite women's years of experience or length of time with the organization, the study still found that men are much more likely to assist other men in getting promoted. Senior leadership positions at the company surveyed, as is the case at many other organizations, were predominately held by men, even though women outnumbered men in total throughout the company.

This situation is not uncommon at public accounting firms as well. Men hold many of the partner and leadership positions at firms, while women dominate the entry-level positions. So what should an ambitious woman in public accounting do to change this trend? For one, women looking for mentorship and networking opportunities can join organizations or like-minded professionals such as the American Society of Women Accountants. Many of the national accounting firms also have committees or formal networks specifically for women, such as KPMG's Network of Women. Through such outlets, you can learn from the few women who have successfully challenged the trend of male leadership in business, and leverage their guidance and opportunities to advance your own career. You also need not shy away from taking on leadership positions in co-ed professional organizations or on your audit teams at work. Just because this study proves that we still have a long way to go in achieving workplace equality between men and women doesn't mean that you as a woman shouldn't work toward changing the tide.

For further information about the Indiana University South Bend Study, visit http://www.torontosun.com/life/2010/08/17/15048606.html.

Are you a control freak?

Do the following statements describe someone you know?:

• You're proud of never taking vacation time
• You feel angry when others let you down
• If anyone asks how you're doing, you're always "swamped"
• People ask you a lot of questions because they're afraid of doing something wrong
• You actually believe that no one else can do what you do

These are just some of the characteristics described by leadership consultant Cheryl Cran in a recent interview with Entrepreneur magazine about letting go of your inner control freak. If you find any of the above descriptions eerily familiar, then you may need to address your attitude in managing those around you.

When I was working in the Big Four audit environment, you were the exception to the rule if you took all 5 weeks of your firm-issued vacation each year. Being perpetually swamped was a badge of honor, and many people refused to delegate minor tasks to staff or administrative professionals because they wanted to take credit for anything and everything possible in the hopes of getting a higher bonus.

According to Cran, author of The Control Freak Revolution, you ironically can't get out of being a control freak alone. Before you risk burning yourself out, you have to teach yourself to trust other people. Cran suggests you start by delegating basic tasks like scheduling, expense reports, and time sheets. If you're a senior associate and don't have access to a dedicated administrative professional, you need to focus your attention on training your staff well and giving them clear instructions, so that they are well equipped to execute the audit work you assign to them. You'll know you've done a good job at prepping them if they only come back to you with bigger issues they need help on. If they're constantly nagging you about small stuff and the basics of audit execution, they likely need better guidance before being sent back out in the field.

Many people at all levels of an organization think their work is just too important to entrust to others. But even the most powerful people in the world, from political leaders to corporate executives, could not be successful without the legions of trustworthy, well-trained people working behind the scenes to support them in their daily tasks. What makes you think you're more important than the president? Trusting others is the key, and when you invest the time to prepare your staff to understand your expectations and equip them with the skills and resources they need to execute your assignments, you'll find you have a lot more time to be the best at what you need to do.