Tag: accounting

How an Auditor Shortage Could Hurt Local Governments

Mary Pat Campbell

Link: https://www.route-fifty.com/finance/2023/04/how-auditor-shortage-could-hurt-local-governments/385337/

Excerpt:

It’s no surprise to anyone at this point that local governments are struggling to find workers. But finance departments are especially hard-hit when it comes to brain drain. A National Association of State Treasurers study found that 60% of public finance workers are over 45 while less than 20% are younger than 35.

The private sector is facing similar issues. According to the American Institute of Certified Public Accountants (AICPA), the accounting profession has an acute shortage of workers as the population of graduates with accounting degrees has declined over the years. 

….

ACFRs, unlike quarterly or other interim reports, are the official account of a government’s finances for the previous year and show how those numbers compare with previous years. It takes some time for finance departments to gather the year-end data, but getting those numbers audited is the last and generally the most time-consuming step before publishing the annual financial report. In some cases, like in Indiana and Ohio, the audit is conducted or signed off by the state auditor’s office. In other instances, localities hire a firm to audit their financial statements.

According to new data published by the University of Illinois Chicago and Merritt Research Services, the last decade has seen a 13% increase in the median amount of time for local government audits to be completed. That means most governments are posting their ACFRs at least three weeks later in the year compared with a decade ago. Nearly half of the increase has occurred over the last two years. The research focuses on the median—rather than the average—because some governments are extreme outliers and take a year and a half or even more than two years to file their annual report. 

Author(s): Liz Farmer

Publication Date: 18 Apr 2023

Publication Site: Route Fifty

Why So Many Accountants Are Quitting

Mary Pat Campbell

Link: https://www.wsj.com/articles/why-so-many-accountants-are-quitting-11672236016?st=c72oscxvc5a7nzk&reflink=share_mobilewebshare

Excerpt:

More than 300,000 U.S. accountants and auditors have left their jobs in the past two years, a 17% decline, and the dwindling number of college students coming into the field can’t fill the gap. 

The exodus is driven by deeper workplace shifts than baby-boomer retirements. Young professionals in the 25- to 34-year-old range and midcareer professionals between the ages of 45 and 54 also departed in high numbers starting in 2019, according to the Bureau of Labor Statistics. Recruiters who have been luring experienced accountants into new roles say they are often moving into jobs in finance and technology.

The huge gap between companies that need accountants and trained professionals has led to salary bumps and more temporary workers joining the sector. Still, neither development will fix the fundamental talent pipeline problem: Many college students don’t want to work in accounting. Even those who majored in it.

Author(s): Lindsay Ellis

Publication Date: 28 Dec 2022

Publication Site: WSJ

IFRS 17—The Time Is Now

Mary Pat Campbell

Link: https://contingencies.org/ifrs-17-the-time-is-now/

Excerpt:

The more fundamental changes affect the measurement of future services (previously termed as “Reserves”). Many insurance accounting regimes have tried to stabilize their financial statements over the years; therefore, they calculated their reserves based on historic information—locked-in assumptions for insurance parameters as well as historic interest rates. The latter, however, are not in line with the use of market values for the asset side of the balance sheet, which is now perceived as the only fair-value representation for the different stakeholders. Therefore, the measurement of the liabilities in IFRS 17 will always be based on current assumptions.

Due to the compound effect over many projected years, the regular update of assumptions (particularly interest rate or discounting assumptions) can make long-term liabilities much more volatile.

Author(s): Michael Winkler and Sunil Kansal

Publication Date: October 2022

Publication Site: Contingencies

A Fresh Look at Accounting for Reinsurance of Universal Life

Mary Pat Campbell

Link: https://www.soa.org/sections/financial-reporting/financial-reporting-newsletter/2022/september/fr-2022-09-malerich/

Excerpt:

Under LDTI, DAC amortization will no longer obscure the relationship between direct and ceded accounting. It is now possible to align ceded accounting with direct, without any noise from DAC amortization. With poor alignment, distortions within the results reported to management and financial statement users will be different, sometimes greater than before. Whether the goal is to improve reporting or to avoid making it worse, a fresh look can help.

Most of the approaches that have been used to account for UL reinsurance can still be used. One exception is the implicit approach where, in lieu of explicit accounting for reinsurance, the gross profits used to amortize DAC were adjusted to be net of reinsurance. With the elimination of gross profits as an amortization base, this approach no longer has meaning.

For surviving approaches, it is now easier to evaluate their effectiveness in presenting the economic protection provided by reinsurance.

In this article, I begin an evaluation by examining the fundamentals of accounting for the insurance element of universal life. After that, I consider the economic protection provided by reinsurance and look for an ideal—a way to effectively account for that protection.

In a second article to be published later this year, I’ll evaluate several reinsurance approaches in terms of noise from missing the ideal, then end with some thoughts on what might be done to eliminate noise.

The focus of both articles is on the insurance element. Accounting for the deposit element, embedded derivatives, and market risk benefits is beyond the scope of these articles. Also outside of scope is the requirement, in Accounting Standards Codification (ASC) Topic 326, to recognize a current estimate of credit losses from the failure of a reinsurer to reimburse reinsured benefits.

Author(s): Steve Malerich

Publication Date: Sept 2022

Publication Site: Financial Reporting newsletter, SOA

CalPERS Cooks the Books While Taking an Unnecessary Loss to Exit $6 Billion of Private Equity Positions

Mary Pat Campbell

Link: https://www.nakedcapitalism.com/2022/07/calpers-cooks-the-books-while-taking-an-unnecessary-loss-to-exit-6-billion-of-private-equity-positions.html

Excerpt:

CalPERS is up to its old crooked, value-destroying ways. Its sale of $6 billion in private equity positions, at a big discount….because CalPERS was in a hurry despite no basis for urgency, shows yet again the sort of thing the giant fund routinely does that puts it at the very bottom of financial returns for major public pension funds.

Oh, and on top of that, CalPERS admitted to Bloomberg that it is lying in its financial reports for the fiscal year just ended this June 30 by not writing down these private equity assets. As former board member Margaret Brown stated:

In Dawm Lim’s Bloomberg story, Calpers Unloads Record $6 Billion of Private Equity at Discount, CalPERS admits to cooking the books. Not recognizing the sale (the loss in value) in the same fiscal year can only be to play shenanigans with the rate of return. So if, or more likely when, CalPERS again does badly in comparison to CalSTRS and similar funds, remember it would be even worse if CalPERS was accounting honestly.

Author(s): Yves Smith

Publication Date: 8 July 2022

Publication Site: naked capitalism

Don’t Mistake Accounting for Economics

Mary Pat Campbell

Link: https://www.nationalreview.com/2021/04/dont-mistake-accounting-for-economics/

Excerpt:

There’s one mistake that’s particularly common and damaging. Too many observers try to derive economic principles from accounting principles. This is flat-out wrong. The reason is simple: Economics is not accounting. Economists try to understand the causal relationships in commerce and government. Accountants document stocks and flows in an orderly fashion. Economics obviously makes use of accounting, and accounting can be improved through knowledge of economics, but they’re not the same thing.

The most egregious abuses of economics that we see today start with an accounting identity — a true statement or equation — but end with an absurd economic claim. Importantly, an identity is true by construction. Based on the definitions of the variables, the formulation must be so. But it doesn’t say anything about the real world. It certainly doesn’t capture the causal relationships among those variables.

Author(s): Alexander William Salter

Publication Date: 9 April 2021

Publication Site: National Review