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Every Member Plays a Part
Welcome to your September/October issue of Today’s CPA! Here you’ll find valuable updates on the profession and our TXCPA community. I want to share with you one very timely update and a request for your help.
At the end of July, AICPA’s National Pipeline Advisory Group (NPAG) released their final report with proposed profession-wide solutions to address the talent shortage and attract more people to a career in accounting. The report addresses six themes:
• Make the academic experience more engaging
• Address the time and cost of education
• Grow support for CPA Exam candidates
CHAIR
Mohan Kuruvilla, Ph.D., CPA
PRESIDENT/CEO
Jodi Ann Ray, CAE, CCE, IOM
EDITORIAL BOARD CHAIR
Jennifer Johnson, CPA STAFF
MANAGING EDITOR
DeLynn Deakins, MBA ddeakins@tx.cpa 972-687-8550 800-428-0272, ext. 8550
“The Pipeline Task Force wanted to take immediate steps to enhance and expand TXCPA’s outreach.
• Prioritize strategies to expand access for underrepresented groups
• Enhance the employee experience by evolving business models and cultures
• Tell a more compelling story about accounting careers
Having a national strategy focused on workforce development is a key step in leveraging our power as a profession across AICPA and all state CPA societies. TXCPA is in our third year of a CPA Pipeline Strategy, drafted in 2022 by the Pipeline Task Force led by TXCPA Chair Mohan Kuruvilla, Ph.D., CPA-Houston. The task force wanted to take immediate steps to enhance and expand TXCPA’s outreach. They agreed that when a national strategy was introduced, TXCPA would incorporate those initiatives into our state-level plan to help support momentum across the country.
We’re working now on updating our plans and sharing ways our members, volunteers and chapters can help support this important work. It will take all of us working together to effect change and overcome some of the demographic and
MANAGER, MARKETING AND COMMUNICATIONS
Peggy Foley pfoley@tx.cpa
COLUMN EDITOR
Don Carpenter, MSAcc/CPA
DIGITAL MARKETING
SPECIALIST
Wayne Hardin, CDMP, PCM® whardin@tx.cpa
CONTRIBUTORS
Melinda Bentley; Kenneth Besserman; Holly McCauley; Shicoyia Morgan; Craig Nauta; Kari Owen; John Ross; Lani Shepherd; April Twaddle; Patty Wyatt
CHIEF OPERATING OFFICER
Melinda Bentley, CAE
CLASSIFIED
DeLynn Deakins
Texas Society of CPAs 14131 Midway Rd., Suite 850 Addison, TX 75001 972-687-8550 ddeakins@tx.cpa
education trends that are facing the CPA and accounting profession.
The simplest way to add your voice to this critical initiative is to take the online Pipeline Pledge. You’ll find digital badges to show your support, resources to help with outreach, and tools for employers and educators. Imagine the difference we can make if each member pledges to be a part of the solution to our talent shortage and need for workforce development!
Thank you for taking the pledge and supporting TXCPA with your time and your membership!
Jodi Ann Ray TXCPA President and CEO
Let’s Connect!
Drop me a note at jray@tx.cpa
Baria Jaroudi, CPA-Houston; Elle
Kathryn Johnson, CPA-Houston; Jennifer Johnson, CPA-Dallas; Lucas LaChance, CPA-Dallas, CIA; Nicholas Larson, CPA-Fort Worth; Anne-Marie Lelkes, CPA-Corpus Christi; Bryan Morgan, Jr, CPA-Austin; Stephanie Morgan, CPA-East Texas; Kamala Raghavan, CPA-Houston; Amber Louise Rourke, CPA-Brazos Valley; Nikki Lee Shoemaker, CPA-East Texas, CGMA; Natasha Winn, CPA-Houston.
DESIGN/PRODUCTION/ ADVERTISING
Media By Design, LLC
Design: Sherry Gritch
SEC Adopts ClimateRelated Disclosures
After a Two-Year Lag, the SEC Adopts the Disclosures, Albeit with Significant Modifications, and then Puts Them on Ice
After almost two years, the SEC issued final rules in March for climate-related disclosures. The rules represent a significant curtailing of the requirements in the proposed regulations. But nevertheless, registrants reacted immediately. Just a month later, on April 4, the SEC issued a stay in spite of the fact that they do not become effective until 2026. With a pending review in the U.S. 8th Circuit Court of Appeals, the SEC stated that the purpose of the stay is to avoid regulatory uncertainty until the court hears the matter.
In March 2022, the SEC released proposed disclosure requirements for climate-related matters that met with a firestorm of objection. (See “SEC Proposes Controversial Rules Requiring Climate-Related Disclosures” in the May/June 2022 issue of Today’s CPA.) The proposed rules resulted in more than 24,000 comment letters. Although the final rules, which come in at over 880 pages, offer scaled back requirements, the controversy seems far from over.
Within days, 10 Republican-led states filed suit to block the rules. And the Sierra Club filed its own suit asserting that the requirements in the final version remove information that the organization deems necessary to manage its investments. In short, the SEC finds itself between the proverbial “rock and a hard place.”
The most controversial requirement in the 2022 draft made it incumbent on reporting entities to quantify and disclose Scope 1, 2 and 3 greenhouse gas emission metrics (GHG) in a footnote to the financial statements.
At a March meeting, commissioners passed by a three to two vote the final
DON CARPENTER, MSACC/CPA, is clinical professor of accounting at Baylor University. Contact him at Don_Carpenter@baylor.edu.
rules that retain the Scope 1 and 2 GHG disclosures but drop the requirement that Scope 3 GHG must also be included. Scope 3 includes upstream sources of GHG, such as suppliers and business travel, as well as from downstream uses of the entities’ products by customers.
In the discussion section of the final rules addressing consistency, comparability and reliability, the SEC noted commenters’ concerns that subjectivity of emission metrics could lead to a lack of comparability between registrants. Although not requiring a specific standard or methodology, the commission highlighted the Task Force on Climate-Related Disclosures Framework and the requirements promulgated by the International Sustainability Standards Board of the IFRS Foundation, which have been adopted by several major trading partners as accepted approaches to GHG reporting.
The SEC retained many of its disclosure requirements embedded in the 2022 proposal, including:
• The impact of identified climaterelated risks on the registrant’s business and financial statements;
Essential Takeaways You Need to Know
The SEC’s new climate-disclosure rules will impact how companies report greenhouse gas emissions and manage compliance in the coming years. Insights include the following takeaways.
The SEC's Final Rules: The SEC issued final rules in March for climate-related disclosures, which significantly scaled back the requirements from the proposed 2022 regulations. Despite this, the SEC issued a stay pending review in the U.S. 8th Circuit Court of Appeals.
Controversy Over Scope 3 Emissions: The most contentious issue in the 2022 draft was the requirement for companies to disclose Scope 1, 2 and 3 greenhouse gas (GHG) emissions. The final rules retained only Scope 1 and 2 disclosures, dropping the Scope 3 requirement.
Legal Challenges: The rules face lawsuits from both Republican-led states and environmental groups like the Sierra Club.
Phased Implementation and Assurance Requirements: The rules have a phased implementation timeline, with large-accelerated filers beginning disclosure in 2025. Assurance on GHG metrics is phased in, starting with limited assurance in 2029 and reasonable assurance in 2033.
Concerns About Future Regulations: The final rules have raised concerns about potential future regulations, with critics arguing that the SEC's requirements may be more about socio-political objectives than financial transparency.
• The impact these risks are likely to have on the entity’s strategy and outlook;
• Actions taken by the entity to mitigate risk or adjust to identified risks; and
• Information regarding the entity’s climate-related goals or targets.
For large-accelerated filers, disclosure begins in fiscal year 2025 with Scope 1 and 2 GHG added in 2026. However, assurance is not required on the GHG metrics until 2029 when limited assurance must be performed, which is replaced with reasonable assurance in 2033.
Accelerated filers begin disclosure one year later, but Scope 1 and Scope 2 GHG are not required until 2028 with limited assurance in 2031. Accelerated filers are not required to provide reasonable assurance.
All other reporting entities, including non-accelerated filers, emerging growth companies and small reporting companies, begin disclosure in 2027 and are not required to disclose Scope 1 and Scope 2 GHG metrics at all.
The phased-in assurance requirements may cause some confusion among readers and will likely require modification to the auditor’s opinion letter. The phased-in assurance requirements highlight that all review work is not alike. For 2026 – 2028, largeaccelerated filers do not need auditor review of the Scope 1 and Scope 2 metrics even though the information is reported in footnote format, which are typically covered by the auditor’s opinion. Limited
assurance is then required for the ensuing two years.
Limited assurance relies more heavily on management representations and requires less substantive review and a lower reliance on internal controls.
Although no assurance is absolute, reasonable assurance is the auditor’s view that the information is materially correct, akin to the standard in a traditional auditor’s opinion letter. The SEC estimates that the reporting requirements will increase compliance and professional service costs by about $200,000 per large-accelerated filer.
The disclosures mark a departure from the information that readers of Form 10-Ks have been accustomed to seeing. Assuming these requirements stand the challenges they face, it will be incumbent on users of the financial reports to understand the context of this new information, the analysis that goes into the quantifications and the level of assurance that is given by the reporting entity’s attest firm.
As is evident from the volume of comment letters received by the SEC, there is heightened concern not only with these requirements but with what this might portend for future rules. The rules have been criticized as administrative overreach requiring registrants to provide information in response to socio-political objectives rather than provide insight into their financial results. It remains to be seen how the courts will rule.
In the interim, companies are well advised to begin planning for implementation and reporting.
TXCPA Career Center
Do you need to hire talent? Or are you looking for a new job opportunity? Look no further than TXCPA’s Career Center! With job postings aimed specifically at accounting and finance professionals, TXCPA’s Career Center is an ideal resource for employers and job seekers alike.
TXCPA’s Career Center gives members deep discounts on job postings. Plus, internship postings are always free!
Members who are seeking jobs can review job postings and apply online, and they have free access to post a Job Seeker Profile to be reviewed by employers who are looking for superstars like you! Simply use your TXCPA log in credentials to get started.
For your best choice to meet your hiring and professional goals, visit careers.tx.cpa today!
The Importance of the CPA Pipeline
This past year, and increasingly over the past several months, the national discussion about the CPA pipeline has become the focus of the profession. Task forces were established to study the CPA pipeline issues; state societies are beginning to develop and advocate for specific pipeline proposals; state accounting licensing boards are looking to address the pipeline; and some state legislatures are beginning to debate and vote on different pipeline proposals.
TXCPA has been at the forefront of the pipeline discussions. In 2023, the National Pipeline Advisory Group (NPAG), an independent advisory group, convened in response to an AICPA governing Council resolution. TXCPA, through its President and CEO Jodi Ann Ray, CAE, is a member of NPAG, making sure that Texas had a strong voice in the discussions and recommendations. Please see the CEO’s Message in this issue of Today’s CPA for more details on the NPAG’s recommendations to address the accounting talent shortage.
In addition to the NPAG recommendations, TXCPA is taking a close look at what legislative changes may be needed to address the pipeline issues and the need for more CPAs. With an everincreasing population, and numerous large businesses and corporations moving their headquarters to Texas, the demand for CPAs is at an all-time high. TXCPA understands that the significant changes and market conditions in the accounting profession necessitate an additional pathway or pathways to licensure that are substantially equivalent and maintain appropriate rigor.
Your Input is Needed!
In the coming months, TXCPA will develop its 2025 legislative agenda, focusing on the CPA pipeline and other key issues important to the profession. Your input is vital to our advocacy and legislative efforts. If you have ideas or proposals that you believe would be valuable to TXCPA and our Legislative Advisory Committee, please contact the TXCPA Government Affairs team.
Central to any discussion about the pipeline and legislation affecting the profession is a determination to protect mobility –the ability of a CPA to practice across state lines without the need for additional licensing requirements. Creating near national CPA mobility was a decades long effort that has become a model mobility program among licensed professions. Mobility needs to be protected and TXCPA will work hard to make sure that it is not sacrificed in any legislation addressing the CPA pipeline.
BY KENNETH BESSERMAN, Director of Government Affairs and Special Counsel.
Contact him at kbesserman@tx.cpa.
TXCPA TXCPA
In What’s Happening Around Texas, we give you highlights of events and activities happening around the state in the TXCPA chapters.
TXCPA Dallas members had a great time at their August Thirsty Thursday event in Plano! Thanks to everyone who joined and made it a fun evening!
Members of the TXCPA El Paso Board of Directors represented the chapter at the TXCPA Annual Meeting of Members in Frisco. The chapter is in excellent hands!
TXCPA Houston teamed up with NAIFA Houston and the Young Lawyers Association for a night of laughs, great conversations and some close calls at The Puttery! The chapter also hosted a Summer Open House to celebrate new CPAs, new members, leadership and overall, the amazing member community of TXCPA Houston!
TXCPA Southeast Texas made a significant donation to the Southeast Texas Food Bank’s School Tools Program! With the members’ generous support, the chapter contributed over $4,000 in supplies to benefit teachers and children in the Beaumont community. A big thank you to each person who made a monetary contribution, donated supplies and volunteered at collection sites!
This summer, TXCPA Victoria held their first school supply drive, raising over $500 in donated supplies! All contributions were given to Faith Family Church for their 11th annual Pack the Bus Event. Thank you to all those who donated – your generosity will make a meaningful impact in the community!
TXCPA El Paso
TXCPA Dallas
TXCPA Houston
TXCPA Victoria
TXCPA Southeast Texas
2023-2024 Outstanding Chapter Awards
To inspire chapters in their continuing work to elevate member service, TXCPA bestows Outstanding Chapter Awards to the small and medium-sized chapters. Selection is made by a group of past presidents from chapters of all sizes who understand the work involved in successfully leading volunteers. Here are a few highlights about the chapters honored for the 2023-2024 year.
Small Chapter Recipient –
San Angelo Ashlei Lewis, President
The committee was impressed by TXCPA San Angelo’s extensive CPE offerings, their strong membership retention and recruitment efforts, and their active engagement with both members and students. The chapter organized six one-hour events and provided 67 hours of seminar programming.
The chapter exceeded its goal of expanding its reach and increasing the membership! By proactively engaging with non-member CPAs who attended CPE events, they successfully added 33 new CPA members to the roster.
To foster the development of future CPAs, TXCPA San Angelo maintains a strong relationship with their local university, Angelo State University. Their outreach efforts included hosting a CPA2B Bootcamp and participating in a Meet the Firms event. These events allowed students to connect with local CPAs, ask questions about the accounting profession and the steps to becoming a CPA, and gain valuable insights on professional appearance and interview techniques.
Additionally, the chapter organized a San Angelo Tour with CPAs, where they transported students to various participating CPA firms throughout the city. During the tour, attendees received brief tours or presentations from each participating firm.
Congratulations to TXCPA San Angelo!
Medium Chapter Recipient –South Plains
William Sanders, President
TXCPA South Plains awarded $25,000 in scholarships to 13 accounting students from Lubbock Christian University, Texas Tech University, South Plains College and Wayland Baptist University. The scholarship recipients were invited as special guests to the September chapter meeting, where the program educated them about the CPA Exam.
In addition, efforts were made to strengthen engagement with the four local accounting programs by giving presentations to accounting classes. They also served as a resource for financial literacy and promoted the profession at local elementary, middle and high schools.
TXCPA South Plains welcomed 52 new members and achieved a 93% member retention rate. Personal outreach efforts targeted new members, new licensees and potential CPA members. Collaboration with other local accounting and finance-related groups, including the IIA and banking professionals, helped to promote the benefits of TXCPA membership.
The chapter also kept members informed on the role and impact of the TXCPA PAC, including how funds are obtained and distributed. Members were encouraged to participate in the TXCPA PAC and the chapter exceeded its fundraising goal, reaching 149.6% of their target!
Congratulations to TXCPA South Plains!
Madhuri Bandla: Guiding
the Next Generation of CPAs Through Mentorship, Leadership and Dedication
Madhuri Bandla, CPA-Dallas, CFE, is a Senior Lecturer of Accounting at the University of North Texas (UNT) G. Brint Ryan College of Business and recently completed her eight-year work anniversary. She has been a Texas licensed CPA since 2007 and more recently, completed her CFE in 2023. She serves as the Faculty Advisor for UNT’s Don and Donna Millican Accounting Scholars Program, the Faculty Ambassador for TXCPA at UNT, a member of the Partners in Education Committee for TXCPA Dallas, and on the AICPA Academic Executive Committee.
Madhuri has over a decade of professional experience in the areas of public accounting, financial reporting, internal control and SEC filings prior to making the transition to academia. Prior to switching to academia, she was AVP of Financial Reporting and Controls at a publicly listed mortgage company.
Madhuri was recognized with the TXCPA Outstanding Educator Award in 2018. She strives to make a positive difference to the university, the accounting profession and the local community. She is deeply committed to student success, building and strengthening mentoring relationships, and serving as an active volunteer.
Today’s CPA had the privilege of connecting with Madhuri, exploring her career path and her dedication to teaching, learning and facilitating professional development.
What made you choose to major in accounting? Can you discuss your career journey, what led you to become a CPA and your current role as a Senior Lecturer of Accounting at the University of North Texas?
I initially wanted to be a journalist or news reporter, as I enjoyed writing and telling stories. My first accounting class was way back in high school in Chennai, India (where I was born and raised). Debits and credits came very naturally to me and there was no looking back. I was one of the state toppers with a perfect score and went on to major in accounting before moving to the U.S.
I am a proud alumna of UNT’s MS Accounting program with concentration in Audit. I graduated in 2006 and landed my first job as an auditor with Deloitte in the Dallas office. Subsequently, I transitioned to industry and held a variety of accounting and financial reporting roles. I came to realize that financial reporting was storytelling with numbers and I loved it even more. I’ve enjoyed the intellectual challenge in all of my jobs and met the most amazing, intelligent and talented group of accountants throughout my various roles.
Thanks to accounting and my CPA license, I’m grateful to have always had opportunities knocking on my door. At one time, I was consulting with two companies and also taught an evening class as an adjunct faculty. I loved the classroom and realized it was my playground, where ideas, learning and accounting could all come together. I also enjoyed the vibrant energy of working on campus. For a few years, I balanced corporate work life with teaching an evening class until once again, opportunity or destiny knocked on my door. I got a full-time faculty position at my alma mater UNT and have been here for the past eight years. I’m starting a new journey toward my Doctorate in Business with concentration in Accounting at Penn State University’s Smeal College of Business.
In your experience, what trends do you foresee in accounting in the near future?
AI has shifted the business landscape, but accounting is a profession that has stood
the test of time even with cyclical ups and downs. Critical thinking, leadership, integrity and trust are the intangibles that will keep the profession strong and alive. In addition to traditional accounting paths that will continue to have a strong demand for top talent, the transferable skills of accountants will make them valuable in the ESG, IT, analytics and start-ups space to name a few.
I also believe we need more CPAs in the classroom and on the frontlines talking to our students. Raising awareness is key, as is being a mentor and/or a connector.
With changes to some of the work-life models, the profession has stepped up its flexibility compared to my time a decade ago and that’s another positive step in the
an accounting concept that solidifies their knowledge for the CPA Exam, or facilitating professional development through workshops, giving an extra nudge to a student to get back on track or connecting them to a mentor, there are opportunities to make an impact in the life of another that I most love about this profession.
I’m also thankful to UNT for a nurturing environment that encourages learning, growth and creative thinking.
What advice do you give students who would like to pursue the CPA license?
Success in accounting is an achievable goal and not an elusive one. I tell students you can discover your path to success by
right direction. From that perspective, working parents will find accounting to be stable and attractive for the long term.
What do you enjoy most about teaching and building mentoring relationships?
Alluding to one of my favorite quotes of Adam Grant “The most meaningful way to succeed is to help others succeed,” teaching is a purpose-driven profession and I’m always grateful for the opportunity to help the next generation realize their potential. Whether it’s clarifying
aligning your interests and aptitude with an accounting track of your choice. It may be audit, tax, advisory, cost accounting or financial reporting for example, and once you find your niche, you can become an expert in that area. But you also have the flexibility to transition out when you want a change.
The CPA license puts you a cut above the rest, enhancing your market value as a professional and opening up a world of more possibilities and diverse opportunities. Higher education is also a great space and with a master’s
degree and a CPA, that is another attractive career option. I see that many Gen Zs also have an interest in nonprofit or becoming entrepreneurs, and accountants will again have a competitive edge in those domains with their skillsets.
You’ve actively served in a number of leadership roles and committees in your chapter, for TXCPA and for AICPA. Why is volunteering and/or committee service so important to you?
My family in India is very serviceoriented. Growing up, I frequently accompanied my mother to community service projects and found it to be very fulfilling. I believe that when it comes to service, you don’t need a leadership title, and giving your time and talents for a cause or mission is the best form of service. I’ve had wonderful experiences visiting and presenting at high schools across the metroplex. I want to continue to serve and give back to a profession that has been fulfilling to me in different stages of my life.
Outside of work, over the years, I’ve enjoyed volunteering for Junior Achievement, Texas Women’s Foundation and National Charity League.
Tell us about your family.
My husband has an engineering background and specializes in the field of aviation strategy and analytics. My son is a junior and my daughter is a freshman in high school. Work-life balance is a juggling act of moving with the flow and ensuring I don’t drop the ball! My parents live in India and my sister lives in the UK and summers are when I try to meet either or both if I’m lucky.
What do you like to do when you’re not working?
I enjoy reading books, traveling, practicing yoga, meditation and Indian classical dance, which keeps me connected to my roots. I’m a foodie and love the restaurants and diverse cuisines in the DFW metroplex.
Get Involved: Join TXCPA’s Key Persons Program to Advocate for the Profession
Are you interested in helping TXCPA expand the CPA pipeline in Texas, protect the CPA license, and/or engage in politics, policy or government affairs? If so, the TXCPA Key Persons Program is for you! The Key Persons Program connects members with legislators to promote the CPA profession and advocate for TXCPA’s legislative agenda. Key Persons actively engage with lawmakers, fostering communication about the importance of the profession and protecting the CPA license. With the 2025 legislative session approaching, TXCPA is seeking additional members to bolster the program, strengthen relationships with legislators and support TXCPA’s efforts in Austin. No formal experience is needed – just a willingness to get involved Contact Kenneth Besserman or Patty Wyatt for more information, or submit a volunteer interest form. We look forward to working with you in the coming year and in Austin during TXCPA’s Advocacy Day in January 2025.
Submit an Article to Today’s CPA Magazine
The editor of Today’s CPA is seeking article submissions for the magazine. Today’s CPA is a peer-reviewed publication with an Editorial Board consisting of highly respected CPA practitioners.
The publication features articles and columns that focus on issues, trends and developments affecting CPAs in all facets of business. If you would like to submit an article for consideration or to learn more, please contact Managing Editor DeLynn Deakins at ddeakins@tx.cpa.
Mark Your Calendar for the November Month of Service and Accounting Opportunities Month!
This November, TXCPA is hosting BOTH Month of Service and Accounting Opportunities Month. We encourage members, chapters and organizations to give back by engaging in community service and reaching out to schools and students to share information about careers in accounting. Participation is easy! Keep an eye on your TXCPA member communications for volunteer details, and plan to help grow the CPA pipeline and elevate the profile of CPAs in your community.
Unlocking Occupational Wellness: Tips for a Fulfilling Work Life
People with good occupational wellness find their work rewarding, have good relationships with co-workers and find positive ways to handle workplace stress, all while finding a good work-life balance. Learn some tips for maximizing your workplace happiness in this article “Eight Ways to Achieve Optimal Occupational Wellness.”
If you’re struggling with addiction, substance abuse or mental health issues, TXCPA Peer Assistance is here to help. Join a weekly support group, send a confidential message and find more resources at tx.cpa/resources/acan
Looking Back and Charting the Path Ahead
TXCPA members and their guests headed to the Omni Frisco Hotel at The Star on June 28-29, 2024, for an unforgettable Annual Meeting of Members and Leadership Council Meeting. The event offered a dynamic blend of networking, insightful knowledge exchange and a dash of fun-filled activities.
TXCPA Chair Mohan Kuruvilla, Ph.D., CPA, Immediate Past Chair Tim Pike, CPA, CFE, and TXCPA President and CEO Jodi Ann Ray, CAE, kicked off the meeting with a review of the work completed in 2023-2024 and a look at what’s ahead in 2024-2025.
Despite the challenges facing the profession, TXCPA maintained a strong membership base, surpassing 28,000 members. Efforts to connect with potential members have remained a priority and student membership has increased. Efforts to build a strong CPA pipeline have been a major focus, with extensive student outreach programs reaching over 11,500 students with messages about accounting careers and membership.
Advocacy is one of the most important reasons members join TXCPA. We are actively representing CPAs at the state and national levels, particularly in professional standards and tax policy. With the upcoming legislative session in 2025, advocacy efforts will be as crucial as ever.
Community building is another area of focus. TXCPA’s chapters are essential in creating a sense of belonging among members. Initiatives like the Month of Service and Accounting Opportunities Month have highlighted the commitment of CPAs to their local communities, and diversity and inclusion efforts are ongoing to strengthen the community further.
TXCPA is an organization that is dynamic, forward-thinking, and deeply committed to
both its members and the CPA profession. Looking ahead, TXCPA is focused on continuing to grow the membership, improving member satisfaction, streamlining the delivery of benefits, and increasing support for our advocacy initiatives.
LEADING THROUGH UNCERTAINTY
2023-2024 Scholarships
224 applicants
$137,000 awarded 56 recipients
AICPA’s Immediate Past Chair Okorie Ramsey, CPA, CGMA, PMP, gave the keynote presentation on “Accelerate and Lead Through Uncertainty.” He said the top concerns for finance and accounting teams are:
TXCPA’s 2024-2025 GOALS
MEMBERSHIP
Stabilize and grow
Leverage member research to improve the experience
Identify nonmembers’ needs and perspectives
COMMUNITY
Resources to empower chapter leaders
Streamline for efficiencies
ADVOCACY
Bolster the TXCPA PAC to support advocacy Engagement in the 2025 legislative session
• Accelerated digital transformation;
• GenAI and AI;
• The need for new competencies and skills;
• Finding and retaining talent; and
• Maintaining culture in a hybrid environment.
He also discussed the future of finance, transformation in public accounting, the changing workforce, AI-driven solutions, the path to success for diversity, equity and inclusion initiative, and more. Go to the TXCPA website to see his presentation.
Okorie also joined TXCPA’s Destination CPA podcast as our June guest! Tune in to learn more about his path to the CPA license, his advice for students, the importance of representation, and his reflections on his time as AICPA Chair.
THE CPA PIPELINE
In 2022, TXCPA launched our CPA Pipeline Strategy. By 2023, TXCPA had successfully influenced a legislative change to the Texas Public Accountancy Act, reducing the required hours to sit for the CPA
Exam from 150 to 120. New initiatives are opening new doors, while partnerships with influential groups such as the Center for Audit Quality are amplifying TXCPA’s presence in Texas high schools.
We’ve shared career insights with nearly 24,000 students, hosted two CPA Weeks, organized two Accounting Opportunities Months, and expanded our network of Faculty and Student Ambassadors across Texas campuses. Additionally, we’ve introduced new branded materials with Spanish translations. To read the CPA Pipeline Strategy, visit https://bit.ly/FutureTXCPAs.
TXCPA STRATEGIC PLAN
TXCPA Chair-elect Billy Kelley, CPA; Immediate Past Chair Tim Pike, CPA; Past Chair Sheila Enriquez, J.D., CPA; and Past Chair Stephen Parker, CPA, shared the goals and objectives of TXCPA’s new Strategic Plan. The goals include:
• #1: Secure the future of the accounting profession by attracting and retaining talent.
• #2: Ensure the continued influence, impact and viability of the organization by expanding resources to grow and serve our market and responding to its evolving needs.
the Strategic Plan goals and share their insights. TXCPA will leverage this valuable feedback to finalize our tactics and drive the implementation of the Strategic Plan.
BUSINESS MATTERS
In other key updates and reports:
• TXCPA Treasurer Christi Mondrik, CPA; Past Treasurer Angela Ragan, CPA; Investments Committee Chair Chris Lucas, CFA, CPA/ABV; and TXCPA’s former CFO Edie Cogdell, CPA, CGMA, gave the annual financial report;
• Joe Barnard, CPA, shared information on the TXCPA Insurance Trust;
• Accounting Education Foundation Chair Gary McIntosh, CPA, provided an AEF update and special awards;
• Ed Kless from Tipping Point Advisors/ VeraSage Institute presented information on business model transformation; and
Membership and Student Reach
28,085 Members
75% CPAs
1,426 New Licensees 5,453 Students
11,674 Students Reached
300 EVERFI Reach
802 Destination CPA Podcast Downloads
5,022 Reached During Accounting Opportunities Month
• #3: Improve the quality and efficiency of the delivery of services and expand opportunities through a streamlined organization structure.
• #4: Enhance TXCPA’s position in the marketplace with a robust, multichannel marketing strategy to increase visibility, engagement and growth. Attendees were then invited to break into small groups at their tables to discuss
Join us for TXCPA’s Advocacy Day and Midyear Leadership Council Meeting on January 2829, 2025, at the Sheraton Austin Hotel at the Capitol. Keep an eye on the weekly Viewpoint e-newsletter for registration details.
Mark your calendars now for our next Annual Meeting of Members and Leadership Council Meeting, set for June 26-27, 2025, at the beautiful Tremont House and Grand Galvez in Galveston. Save the date and get ready to kick off another fantastic year with TXCPA!
KENNETH W. HURST FELLOW AWARD
Larry Edgerton, CPA TXCPA Permian Basin
2023-24 TXCPA PAC CHAPTER AWARDS
Large Chapter Award
Closest to 2023-24 Fundraising Goal
TXCPA Dallas
President: Max Duplant
PAC Chair: Terri Hornberger
Highest Percentage of Members Contributing TXCPA South Plains: 9.2%
President: William Sanders
PAC Chair: Mark Dickson
Special Recognition Award
Chapter with the largest year over year fundraising increase: TXCPA Fort Worth
President: Stephanie Shaner
PAC Chair: Renee Prince
Highest Percentage of Fundraising Goal
TXCPA Southeast Texas: 181.5%
President: Ricardo Colon
PAC Chair: Josh LeBlanc
OUTSTANDING CHAPTER AWARDS
Please see the Chapters Column in this issue of Today’s CPA to read about the 2023-2024 Outstanding Chapter Awards.
2024-2025 TXCPA LEADERSHIP
Board of Directors and Leadership Council
Go to the TXCPA website
How Accountants Can Leverage Corporate Culture for Success
HBY FRANK BADUA, PH.D., MBA, CIA, AND ASHISH GHIMIRE, PH.D.
igh-profile accounting scandals have grabbed headlines over the years, sparking extensive reforms to curb accounting fraud and corporate misconduct. The most infamous of these scandals often showcased toxic corporate cultures as a significant factor (Amato, 2012), prompting regulators to place greater emphasis on fostering ethical cultures and strong “tone at the top” leadership.
For example, the Committee of Sponsoring Organizations (COSO) internal control framework explicitly references “corporate environment” or “internal environment” (Leland 2023; Kong, Latry, Bah, and Biswas, 2018), which comprise the corporate culture influencing and permeating its controls and operations (Deloitte, 2004). Similarly, the UK’s Financial Reporting Council references “corporate culture/culture” 55 times in its Review of Corporate Governance Reporting white paper (FRC, 2022).
The effects of bad corporate cultures are well known, while the positive effects arising from good corporate culture receive less attention in the press. Examples of both are included in Table 1.
However, the concept of corporate culture appears to not have been operationalized and is rarely mentioned in accounting and audit standards. As a result, accountants lack guidance on how to measure or use it.
A written code of ethical culture does not guarantee good corporate conduct (Contreras, Dey, and Hill, 2020). Is there a better way to capture and measure corporate culture? Scholarly literature from the accounting and finance profession suggests various ways.
There have been various scholarly papers using measures of corporate culture to analyze issues of accounting and auditing relevance. These measures vary from those based on firm activities, manager characteristics or geographic location.
KEY TAKEAWAYS
FINANCIAL STATEMENT AND ANNUAL REPORT PREPARERS:
• Investors value a strong corporate culture.
• Firms with good CSR/philanthropic activities trade at a premium.
• Highlighting CSR performance in financial statements is recommended, though not mandatory in the U.S.
• Social capital is used as a proxy for corporate culture in research.
• Client locale should be considered when evaluating inherent risk in audits.
• Strong corporate culture correlates with lower audit fees.
• Using corporate culture indicators in audit planning is acceptable and not akin to unfair profiling.
MANAGERIAL ACCOUNTANTS:
• Corporate culture improves the design and use of managerial accounting systems.
• Higher corporate culture leads to more efficient resource use and lower debt capital costs.
Please see Table 2 on the TXCPA website for more details on the articles published and their findings.
One measure of corporate culture is corporate social responsibility (CSR) or philanthropic activity by the firm. Another measure of corporate culture is its environmental and organizational characteristics, which include:
• Attitude about uncertainty;
• Perceived competition level;
• Supportiveness;
• Centralization;
• Formality; and
• Rule-based orientation.
Another measure of corporate culture focuses not on the firm but on its personnel, namely, management. Management value orientation identifies what managers consider to be paramount and might value the most in planning and executing their activities, including:
• Innovation;
• Outcome orientation;
• Attention to detail;
• Team orientation;
• Stability; and
• Respect for people.
However, the measure of corporate culture that was employed the most often is based on the location of the firm’s headquarters. A significant stream of literature in accounting, finance and other business disciplines has begun to use a measure of social capital in geographical areas to proxy for corporate culture.
The notion of social capital as used in this article was coined by urban planner Jane Jacobs (Alexiou, 2006), who used it to describe the informal apparatus of “self-government … forged by neighborhood networks” (Jacobs, 1961, p.183).
Over time, various disciplines have developed unique methods to measure social capital, aiming to better explain and predict various phenomena. In the realms of accounting and finance, scholars have crafted a distinct measure of social capital, one that considers the intricate social structures within a community that promote cooperative norms and pro-social actions.
The data is based on information about county level voter turnout, census response rates, total number of social organizations and total number of nonprofit organizations. The Northeast Regional Center for Rural Development (NRCRD) at the Pennsylvania State University updates this social capital for all U.S. counties annually.
Having explored various metrics for evaluating corporate culture, this article shifts focus to their practical relevance for accounting and auditing. It examines how these cultural indicators can enhance the roles of financial report preparers, auditors and managerial accountants. Additionally, it provides a detailed look at how matching corporate culture metrics with accounting and audit functions can optimize performance and ensure financial integrity.
For financial statement and annual report preparers, one of the key takeaways is that investors place high value on indications of a strong corporate culture. Research shows that firms whose CSR or philanthropic activity exhibits good corporate culture trade at a premium to others. This suggests that
THE IMPORTANCE OF CORPORATE CULTURE
Corporate culture is crucial for attracting and retaining top talent, particularly for new graduates who prioritize the following key factors.
WORK ENVIRONMENT
Graduates seek supportive, inclusive workplaces where they feel valued and comfortable.
CAREER DEVELOPMENT
Graduates look for employers who invest in employee growth through training, mentorship and clear advancement opportunities.
JOB SATISFACTION
Positive cultures lead to higher job satisfaction, making employees eager to join and stay with happy, engaged teams.
WORK-LIFE BALANCE
Flexibility and remote work options are highly valued, reflecting a commitment to work-life balance.
REPUTATION
A strong corporate reputation enhances resumes and future career prospects, making reputable companies more attractive.
EMPLOYEE WELL-BEING
A focus on health and wellness, including mental health support, is important for those seeking employers who prioritize their overall well-being.
VALUES ALIGNMENT
Graduates look for employers with values that align with their own, including ethical practices and a commitment to diversity.
INNOVATION AND CREATIVITY
Companies that encourage new ideas and dynamic work environments appeal to graduates looking to make meaningful contributions.
NETWORKING AND RELATIONSHIPS
Graduates value environments that foster strong professional relationships and networking opportunities.
preparers of financial statements would do well to include and highlight CSR performance, though it is not currently mandatory in the United States.
For auditors, it’s important to note that higher levels of corporate culture are associated with lower incidences of corporate tax avoidance, financial reporting irregularities and corporate misconduct. These findings are from research where social capital was used as a proxy for corporate culture. Thus, in planning audits, auditors might use client locale as a factor to consider when evaluating inherent risk.
Interestingly, research also reveals that strong corporate culture, as indicated by social capital within a specific geographic region, correlates with lower audit fees.
Therefore, it appears that using corporate culture indicators as part of an audit planning tool is acceptable. Auditors employing this approach would not be vulnerable to accusations of unfair profiling of audit clients analogous to racial profiling, which can lead to excessively harsh police tactics and varying rates of IRS audits (Elzayn et al., 2023), especially if this practice is already being used for audit pricing decisions.
Finally, for managerial accountants, research reveals that corporate culture as measured by organizational traits and manager value orientation are associated with better design and use of managerial accounting information systems. A higher level of corporate culture, as captured by social capital, is associated with more efficient use of corporate resources, as well as lower costs of debt capital.
Research shows that there are different ways accountants can measure corporate culture, from firm activities to manager characteristics to geographic location. Perhaps more importantly, the same scholarship shows how these measures indicate how well a firm does in its operational, financial reporting and compliance objectives. Now it’s up to accountants and auditors to make intelligent use of them.
Bibliography
Alexiou, A. (2006) Jane Jacobs: Urban Vision Rutgers U. Press: New Brunswick, NJ. 231.
Amato, N. (2012) “Lawmakers Reflect on SOX’s on Corporate Culture.” Journal of Accountancy July.
TABLE 1. EXAMPLES OF CORPORATE CULTURE’S EFFECTS
Bad Corporate Culture
Toshiba’s corporate culture emphasized blind obedience to superiors, discouraging whistleblowing. Toshiba was delisted from the Tokyo Stock Exchange in 2023 due to financial fraud scandals.
Good Corporate Culture
Though the larger corporate culture at WorldCom was bad, within the internal audit division, the culture was described by its head, whistleblower Cynthia Cooper, as one of “honesty, transparency … stepping up to the plate and swinging the bat to do what you needed to.” Cooper and her team helped unravel the WorldCom fraud.
Enron’s corporate culture was notoriously toxic, incentivizing employees to achieve financial targets at any cost. Ultimately, accounting fraud led to the company’s demise.
AICPA (2012, December 15). Consideration of Fraud in a Financial Statement. AU-C-240. Audit Board. “Agents of Change,” https://www. auditboard.com/blog/agents-of-change-cynthiacooper-part-1/
Contreras, A., Dey, A., and Hill, C. (2020) “Tone at the Top and the Communication of Corporate Values: Lost in Translation?” Seattle Law Review 43: 497.
Deloitte. Corporate Culture and Control Environment: Foundation of Internal Control. 2004
Elzayn, H., Smith, E., Hertz, T., Ramesh, A., Goldin, J., Fisher, R., and Ho, D. (2023) “Measuring and Mitigating Racial Disparities in Tax Audits,” Stanford Institute for Economic Policy Research
Erserim, A. (2012) “The Impacts of Organizational Culture, Firm’s Characteristics and External Environment of Firms on Management Accounting Practices” Procedia Social and Behavioral Sciences 62: 372-376.
Financial Reporting Council (FRC). Review of Corporate Governance Reporting. 2022.
Gao, Z., L. Li, and L. Y. Lu. 2019. Social capital and managers’ use of corporate resources. Journal of Business Ethics pp. 1–21.
Hasan, I., C.-K. HOI, Q. Wu, and H. Zhang. 2017a. Does social capital matter in corporate decisions? Evidence from corporate tax avoidance. Journal of Accounting Research 55:629–668.
Hasan, I., C. K. Hoi, Q. Wu, and H. Zhang. 2017b. Social capital and debt contracting: Evidence from bank loans and public bonds. Journal of Financial and Quantitative Analysis 52:1017–1047.
In testimony that uncovered the Lockheed bribery scandal, William Finley of the CPA firm Arthur Young shared the following with Sen. Charles Percy about his firm’s corporate culture. Sen. Percy: “Would it be looked upon as over-moralizing if you advise a client with respect to ethics?” Finley said, “If we are troubled by the conduct of the business, our obligation is to bring it to attention.”
Hilary, G., and K. W. Hui. 2009. Does religion matter in corporate decision making in America? Journal of financial economics 93:455–473.
Institute of Chartered Accountants of England and Wales. (ICAEW). The Challenge of Auditing Culture 2023.
Jacobs, J. 1961. 1 961, The Death and Life of Great American Cities. New York: Vintage
Jha, A., and Y. Chen. 2015. Audit fees and social capital. The Accounting Review 90:611–639.
Kong, Y., Lartey, P., Bah, F., Biswas, N. (2018), “The Value of Public Sector Risk Management: An Empirical Assessment of Ghana,” Administrative Sciences. 8(30).
Le, H., Nguyen, T., and Hoang, T. (2020) “Organizational culture, management accounting information, innovation capability and firm performance,” Cogent Business and Management 7(1).
FRANK BADUA, PH.D., MBA, CIA, is Professor of Accounting at McMurry University Johnson School of Business in Abilene, TX. His previous articles have been published in over a half-dozen peer-reviewed journals, including Today’s CPA. He received his Ph.D. from Rutgers, the State University of NJ.
Leland, A. (2023) “Fundamentals of the COSO Framework, Building Blocks of Internal Control” Auditboard, May.
Lins, K, Servaes, H., and Tamayo, A. (2017) “Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis” Journal of Finance 72(4)
Parsons, C. A., J. Sulaeman, and S. Titman. 2018. The geography of financial misconduct. The Journal of Finance 73:2087–2137.
PCAOB (2024, December 15). Consideration of Fraud in a Financial Statement Audit. (AS 2401)
U.S. Senate (1970). Meeting of the Subcommittee on Multinational Corporations, Committee on Foreign Relations. 94th Congress
ASHISH GHIMIRE, PH.D., is Assistant Professor of Finance at McMurry University Johnson School of Business in Abilene, TX. He received his Ph.D. from the University of North Texas.
TXCPA Thanks Our 2024-2025 Faculty and Student Ambassadors!
Faculty and student ambassadors help us strengthen TXCPA’s presence on Texas campuses and learn more about what we can do to support Texas educators and students as we focus on growing the pipeline of CPAs in Texas. Learn more in the Be An Ambassador section of www.tx.cpa.
Many thanks to these ambassadors for their support and engagement in 2024-2025!
FACULTY AMBASSADORS
Linda Acevedo, CPA
The University of Texas Rio Grande Valley
Dr. Susan Anders, CPA, CGMA Midwestern State University
Michelle Avila, CPA
Our Lady of the Lake University
Madhuri Bandla, CPA, CFE University of North Texas
Helen Bassett
Lone Star College – University Park
Okera Bishop, CPA
Austin Community College – Highland
Tara Blasor, CPA
Texas A&M University
Kelli Blount, CPA
Austin Community College – Northridge
Derrick Bonyuet-Lee, CPA, CGMA University of Texas at Austin Huston-Tillitson University
Regina Brown
Dallas County Community College District
– Eastfield
Ricardo Colon, JD, LLM, CPA Lamar University
Ginger DeLatte, CPA
Texas A&M University – Corpus Christi
Tiffany DeLuze, DBA University of Mary Hardin-Baylor
Dennis Elam, CPA
Texas A&M University – San Antonio
Mary Beth Goodrich, CPA University of Texas at Dallas
Dr. Marina Grau, CPA
Houston Community College
Jessica Hazel, CPA McLennan Community College
Narita Holmes, CPA
University of Texas Permian Basin
LaPortia Hurse
Dallas County Community College District
– Brookhaven
Selena Jefferies, CPA
Texas A&M University – Texarkana
Dr. Michael Kraten, CPA University of Houston
Anne-Marie Lelkes, Ph.D., CPA, CMA
Texas A&M University – Kingsville
Yongli Luo
Houston Christian University
Kristy McDermott, CPA
Austin Community College – Round Rock
Dr. Arpita Shroff, CPA University of Houston – Downtown
Kathleen Moffitt, CPA, CIA
Texas State University
Celinda Moore, CPA
Texas Tech University
Dr. Renee Olvera, CPA
Texas Christian University
Julia Frink
Tarrant County College – Connect
Patrick Grewe
Tarrant County College – Northeast
Marsha Peters
Dallas County Community College District –Mountain View
Jacqueline Pierson, CPA, CFF Lone Star College – CyFair
Dr. Richard Pitre, CPA
Texas Southern University
April Poe, CPA University of the Incarnate Word
Daniel Puhl, CPA
Sam Houston State University
Dr. Laci Richardson, CPA
Lubbock Christian University
Sarah Robertson, CPA
University of Texas at El Paso
Jawanna Sanderson, CPA
Sul Ross State University
Stacie Smith
Kilgore College
Shanshan Pan University of Houston – Clear Lake
Larry Stephens, CPA
Austin Community College – South Austin
Stephanie Swaim, CPA
Dallas County Community College District
– North Lake
Jay Thibodeaux, II, CPA
Austin Community College – Eastview
Charles Thomas, Jr, CPA, CGMA
Tarleton State University
Linda R. Vaello, CPA University of Texas at San Antonio
Dr. Robert Walsh, CPA University of Dallas
Dr. Kimberly Webb, CPA
Texas Wesleyan University
Denise White
Austin Community College – Cypress Creek
Sunita White, CPA Trinity University
Veronda Willis, CPA, CGMA University of Texas at Tyler
Pamela Ansboury, CPA, M.Ed San Antonio College
Patricia Wynn, CPA, CMA, CGMA, CFE, CSCA University of North Texas at Dallas
Ziyun (Calvin) Yang University of Houston – Victoria
Jaye Simpson Tarrant County College Northwest
STUDENT AMBASSADORS
Gabriela Benavides University of Texas at San Antonio
Abdul Aweda Texas State University – San Marcos
Erica Acosta
Texas A&M University – San Antonio
Noel Casino
St. Mary’s University
Emilio Castaneda University of Texas at Austin
Gail O’Banner University of North Texas at Dallas
Nelson Rose Trinity University
Vaishnavi Jayaraman University of Houston
Rosa Son Houston Christian University
Amanda Perrin Schreiner University
Ninelle Gutierrez University of Texas at El Paso
John Varghese
Dallas County Community College District
Lenora Williams Midwestern State University
Alma Martinez Del Mar College
Ashley Bynum Texas Wesleyan University
Ayham Rached University of Texas at Dallas
Erin McSpadden University of North Texas
Fei Song University of Texas at Austin
Iman Raji Huston-Tillotson University
Javier Solis Jr.
Dallas County Community College District – Eastfield
Min Tan
Austin Community College
Nubia Hayes
Prairie View A&M University
Sally Simmons
Lubbock Christian University
Shalisa Smith
Tarrant County Community College
Top Cybersecurity Tactics for CPAs in the Digital Age
BY STACEY HOWARD
While navigating digital transformation, the world positions the accounting profession in its crosshairs. Many CPAs and accounting firms are sitting on a treasure trove of sensitive data and are becoming prime targets for cybercriminals.
Technology has introduced innovative measures for streamlining processes and enhancing the efficiency of CPA firms. However, everything that glitters is not gold.
According to IBM’s Cost of a Data Breach report, firms investing in cybersecurity now are saving an average
cost of $4.45 million/data breach, a 15% increase over the past three years. These advancements also open up the accounting profession to novel risks. Consequently, cybersecurity solutions have become imperative for CPAs to safeguard their businesses and clients.
THE RISE OF DIGITAL TRANSFORMATION IN ACCOUNTING
CPAs and accounting firms are actively reshaping themselves through digital transformation. They are embracing advanced tools and technologies such as artificial intelligence (AI), machine learning and automation. These innovative measures enhance efficiency
and empower CPAs and accountants to transition their focus from mere data crunching to high-value services. This shift includes strategic financial planning and risk management, even business advisory services.
Technology has revolutionized the accounting profession; however, it introduces new challenges – notably cybersecurity threats – that demand immediate attention.
WHY HACKERS ARE TARGETING CPAS
In recent years, we have witnessed a shift in focus among hackers. They no longer concentrate solely on the prominent, headline-making targets associated with previous breaches. Instead, their attention extends to smaller and less conspicuous victims.
Emerging patterns suggest that certain financial cybersecurity criminals might even circumvent launching ransomware attacks against larger organizations. This will help to prevent national political or law enforcement responses – as Sherry Bambrick, Senior Underwriter for the AICPA Member Insurance Programs, asserts. This is an evolving strategy carrying significant implications for CPAs.
Bambrick stated: “Hackers find CPA firms particularly attractive because these entities essentially aggregate financial and personal identifiable information (PII) data. The escalating emphasis on smaller organizations, along with the vast amount of PII potentially held by a firm, significantly amplifies the risk they encounter.”
Hackers target CPA firms not only for their access to client funds but also due to the assumption that mid-size and smaller firms lack robust information security strategies. These assumptions are born from a misguided belief held by their leaders that they’re too small to be targeted.
WHAT ARE THE BEST CYBERSECURITY PRACTICES FOR CPAS?
Let’s tap into some of the cybersecurity practices to stay ahead in the competitive market.
1 Proactively Detect Risks
CPAs must proactively detect risks and vulnerabilities and protect against breaches or “active” concerns such as phishing and ransomware. They need to put measures in place for this.
Moreover, these protective strategies should address the technology involved and its users. Comprehensive security is a shared responsibility where both digital systems and human factors intersect in all their complex intricacies. How you can go about it:
• Use risk assessments for a health check of your business;
• Implement zero trust factor that aims to protect the network and security infrastructure;
• Watch for advanced persistent threats (APTs) and monitor endpoints by using tools such as endpoint detection response (EDR); and
• Use software like MetricStream IT and cyber risk management software for risk identification.
2 Conduct Training and Build a Secure Culture
CPA firm owners should conduct security awareness training that includes realworld exercises. In particular, realistic and challenging phishing simulations should be implemented. To reinforce best practices, adeptly blend teaching with engaging activities.
Construct a firm emphasizing a “culture of security,” focusing on data governance and management. Remember that the business side – not just the IT and risk management divisions – must provide robust input for this initiative. CPAs can run cybersecurity governance and risk management programs using voluntary framework, which can include the risk assessment.
For instance, the National Institute of Standards and Technology (NSIT) includes the following five continuous functions.
Identify: Develop an organizational understanding of managing cybersecurity risk to systems, people, assets, data, and capabilities.
Protect: Proactively implement appropriate safeguards to ensure the delivery of critical services. By doing so, you can take control of your cybersecurity landscape.
Detect: Identify the occurrence of a cybersecurity event.
Respond: Take action regarding a detected cybersecurity incident.
Recover: Maintain resilience plans and restore any capabilities or services that were impaired by a cybersecurity incident.
3 Emphasize Self-Awareness Practice
Remind your employees to cultivate selfawareness, a crucial practice in today’s digital landscape. Taking a moment before responding or acting upon suspicious emails can often mark the turning point; it is usually half the battle won.
To illustrate this concept, urge them to evaluate dubious URLs for anomalies and validate the sender’s identity through another trusted method – perhaps by placing an essential phone call.
4 Implement Multi-Factor Authentication and Restrict Online Sharing
All access points require more than just a password to join the network, so utilize multi-factor authentication. Implementing confirmation via text messages, phone calls or fingerprints, despite its minimal effort, can significantly enhance a firm’s security.
You should push employees to restrict the online sharing of work-related information, as potential attackers can leverage this practice for social engineering schemes. It will effectively mitigate cyber criminals’ ammunition by refraining from incorporating details such as client or colleague names in personal social media posts.
5 Use VPN
A virtual private network (VPN) masks employees’ identities, safeguarding their communications from potential attackers, a measure particularly crucial when they utilize public WiFi.
To scan and block malicious links, attachments or accounts – thus potentially intercepting and neutralizing malware from a corrupt link or attachment –requires the active tasks of installing and maintaining regular updates. Anti-virus/ anti-phishing software is our tool for such critical operations.
6 Ensure Strict Control Over Data Sharing
When engaging with third-party providers, exercise stringent
control measures like incorporating indemnification clauses or stipulating that the provider maintains cyber insurance in its service agreement for potential breaches on a third-party platform.
7 Plan Ahead for Any Data Breach
You must create a robust security and breach response plan that can be quickly implemented in the event of an issue. Furthermore, it is imperative to revisit and update this plan regularly. This practice helps ensure its effectiveness against the ever-evolving risk landscape.
BOTTOM LINE
Integrating AI in accounting services not only augments cybersecurity defenses but also empowers firms to navigate the complexities of modern digital landscapes with confidence. See how at this link
The evolution of digital transformation in accounting necessitates a paramount focus on cybersecurity. As cyber threats continue to advance, CPA firms must actively enhance their security measures. This is crucial for both protecting sensitive data and ensuring compliance with industry regulations.
STACEY HOWARD is an accomplished blogger with over a decade of experience in the field of accounting and bookkeeping. With her extensive knowledge and expertise, she has been working as an accountant at a leading business process management firm Accounting To Taxes Throughout her career, she has developed a passion for sharing valuable insights and information on various accounting industries through her engaging and informative write-ups. Her contributions to the accounting community have been widely recognized, making her a soughtafter expert in the field.
TXCPA Has Your CPE Needs Covered
Mark your calendar and plan to attend TXCPA’s upcoming CPE programs!
Single Audits and Governmental Accounting and Auditing Conference
September 23-24 | Austin and Webcast
Accounting Education Conference
October 18-19 | San Antonio and Webcast
Financial Institutions Conference
November 12-13 | Webcast
CPE Expo
November 14-15 in Dallas/Fort Worth
December 9-10 in San Antonio December 16-17 via Webcast
Newly Updated TSBPA-Approved Ethics Course for Members: TXCPA members can now easily meet their four-hour ethics requirement with our newly updated, free and TSBPA-approved ethics course. As a membership benefit, this course is available at no cost and is accessible until May 31, 2025, for the 2024-25 fiscal year. Log in today to complete your CPA licensing requirement from the comfort of your home or office!
On-Demand CPE Passport: If you’re looking for convenient access to quality CPE courses at a great value, the TXCPA Passport is for you! This one-year subscription to on-demand programs is available at a special low price of just $199 for members. CPE hours are offered through programs of varying length. Topics include tax, accounting, assurance, not for profit, fraud and more. Purchase a passport
View the complete schedule and register now in the Education area of our website or call the TXCPA staff at 800-428-0272 (972-687-8500 in Dallas) for assistance.
Optimizing Consultant Engagement for Business Growth
BY PARISA MANSOORI, CPA, MBA
Managing a growing company is no easy feat. Besides running day-to-day operations, business owners must also juggle strategic planning, financial management, marketing and sales, legal and compliance, risk management, and everything in between.
In large, established firms and companies, specialized departments with dedicated experts focus on executing objectives in each area. However, in smaller, growing firms and companies, where roles are more fluid, it can be challenging to ensure all functions receive the necessary attention and align with common goals.
Engaging consultants to assist in achieving business goals can be a tremendous relief to business owners. They bring extensive exposure to various scenarios, offering unique expertise and effective solutions. In addition, they can aid in developing strategic plans, resolving specific problems, implementing new technologies, teaching new skills, and sharing valuable insights. With years of experience, they often bring best practices and innovative ideas to enhance efficiency and effectiveness.
Consultants can also provide objective perspectives during periods of change and crisis response, and offer expertise in strategy, human resources, operations, risk and compliance, and financial matters. When lacking in-house expertise, seeking a second opinion or needing business restructuring, they can be a valuable resource.
However, consultants can be costly and as with any significant expense, business owners must approach the decision to engage consultants thoughtfully and strategically to maximize their return on investment (ROI). To achieve the best results from the relationship, several steps can be taken before, during and after the engagement.
Before engaging consultants, it’s crucial to start with a clear roadmap for success. Defining objectives and desired outcomes, along with specific metrics to measure progress, will lay the foundation for a fruitful collaboration.
Keep in mind that most consultants possess specialized expertise and experience. To maximize the benefits of their involvement, ensure that your goals and objectives align seamlessly with the services they offer. For example, suppose you have identified consistently lower sales related to a particular service line and suspect an underperforming marketing campaign. Bringing in a marketing consultant with relevant industry experience would be a smart move. Crafting a well-defined project scope and objectives not only assists in identifying the right individual for your unique needs, but also serves as a valuable tool to measure the project’s success.
To make the most of the engagement, it’s essential to establish clear expectations from the start. When working with a marketing consultant, for instance, have a candid discussion about the deliverables you expect from them and how success will be measured. It could be a comprehensive report highlighting actionable suggestions to enhance your
KEY POINTS TO CONSIDER
Benefits of Hiring Consultants:
Consultants bring experience, best practices and innovative ideas that can improve efficiency, enhance effectiveness and provide objective perspectives for the business.
Strategic Use of Consultants: Due to the significant costs involved, engaging consultants should be done thoughtfully and strategically to maximize ROI.
Define Objectives: Before beginning a project, clearly define your business objectives, desired outcomes and specific metrics to measure progress.
Align Expertise with Business
Needs: Ensure that your goals align with the consultant’s specialized expertise to achieve the best results.
Set Expectations and Monitor
Progress: Ensure there are clear expectations from the outset, including deliverables and success metrics, to create a productive partnership. Establish milestones, deliverables and deadlines to track progress and adjust strategies as needed during the engagement.
marketing strategy, or perhaps you envision them taking a hands-on approach to implement the strategy and achieve a 5% sales increase within a year. These critical details should be openly communicated and agreed upon to ensure a successful and rewarding partnership.
By thoughtfully defining your objectives, aligning with the right consultant’s expertise and setting realistic expectations, you pave the way for a powerful collaboration. Embrace this proactive approach and it can be a catalyst for transformative growth.
Once your consultant is on board, establishing a collaborative working relationship is vital for a successful project. Ensure that the individual receives the necessary cooperation from your internal team and has access to essential data, documentation and software. This sets the stage for efficient and effective progress toward achieving your project objectives.
It’s important to strike a balance between giving your consultant the space to create and develop solutions while maintaining
oversight. Being available for feedback is crucial, as it fosters a dynamic and productive working environment.
To keep things on track, establish reasonable milestones, deliverables and deadlines. These help maintain focus and provide opportunities to address challenges and make necessary adjustments as the project progresses.
As the engagement progresses, don’t forget to assess the benefits of the work being done. If you defined a clear scope and metrics at the project’s outset, measuring progress should be straightforward.
Additionally, consider evaluating the intangible benefits, such as how the consultant’s presence and contributions have impacted your team’s skills, confidence and ability to tackle future challenges. Consultants often bring intangible value, leaving a positive and lasting impact on your team’s readiness to handle new obstacles with confidence and proficiency.
As the engagement nears completion, don’t neglect to create a transition plan for your consultants and staff. Ensure all deliverables have been properly transferred, and knowledge
is effectively shared with your permanent staff and leadership team.
By taking these informed steps, you pave the way for a seamless working relationship and set the stage for remarkable results. Collaborate effectively, assess progress wisely and execute a well-planned transition.
When the engagement has concluded, maintain a long-term relationship with your consultants. Even if your immediate business needs have been met, keeping in touch can be a strategic advantage. Cultivating this connection proves valuable for tackling future challenges and capitalizing on opportunities. By skillfully managing the relationship, you unlock the full potential of the benefits consultants bring to your business, empowering you to navigate the complexities of managing a growing firm or company with heightened confidence.
PARISA MANSOORI is a Senior Manager at Arcus Advisors.
Consultants offer valuable expertise, diverse experiences and innovative solutions tailored to address specific challenges and elevate overall business performance. To make the most of the engagement, approaching the decision thoughtfully and strategically is of paramount importance. Embrace the collaborative power of consultants and watch your business thrive like never before.
CURRICULUM:
Accounting and Auditing; Management
LEVEL:
Basic
DESIGNED FOR:
CPAs in business and industry; management accountants; controllers
OBJECTIVES:
To explain the five tollgates of inventory movement, describe the role of the annual physical inventory, and provide a look at a manufacturing company
KEY TOPICS:
Receipt of material, internal failure, production reporting, Bill of Material accuracy, and shipping verification; annual physical inventory; and key concepts of the COSO Framework
PREREQUISITES:
None
ADVANCED PREPARATION:
None
TAKE THE ONLINE CPE QUIZ
Today’s CPA offers the self-study exam for readers to earn one hour of continuing professional education credit. The questions are based on technical information from the following article. If you score 70 or better, you will receive a certificate verifying you have earned one hour of CPE credit in accordance with the rules of the Texas State Board of Public Accountancy (TSBPA).
Take the CPE quiz online on TXCPA’s website at https://www.tx.cpa/resources/todays-cpa
The State Board stipulates that the quiz is valid for one year from its publication in Today’s CPA. Quizzes submitted after this one-year period will not be accepted.
BY JOSEF RASHTY
The Tollgates of Inventory and Financial Control
BY DR. JOEL K. FAIDLEY, CMA
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A major challenge for management accountants and manufacturing companies is control of operations and the resulting impact on their financial statements. The causal effects of standard operating procedures, work instructions and shop floor decisions impact financial performance of inventory centric companies.
Inventory is the lifeblood for many companies, requiring a dual focus on maintaining enough raw materials for production and minimizing cash tied up in slow-moving or obsolete stock. Corporate and plant management focus heavily on continuous improvement through lean principles and reducing process variation.
A case in point is Exide Technologies’ largest manufacturing plant and distribution center in Bristol, Tennessee. At the peak of the facility’s lead acid battery manufacturing production, volumes exceeded 30,000 units per day with 1,000 employees. The responsibility and accountability to manage inventory, production and supply chain for customer orders fell squarely on the shoulders of the plant manager, production manager, controller, and materials manager.
The site controller is viewed as the one knowledgeable in financial reporting, budgeting, forecasting, and the overall business leader for the facility since their knowledge of the causal effects of shop floor decisions had significant implications for financial results. The departments of quality assurance, engineering, facilities maintenance, distribution, human resources, and environmental health rely on the controller and the accounting department to supply insight into key performance indicators in both dollars and units of measure.
The evolution of basic policies and procedures through adaptation to new and complex reporting requirements was gradual and allowed for thoughtful improvements. The onset of the SarbanesOxley Act (SOX)1 and specifically Section 404: Management Assessment of Internal Control dramatically increased the accountability of various processes at the manufacturing plant level.
Arguably, one of the most complicated and time-consuming sections of the Act is when the controller and plant manager reviewed and signed off on a large number of controls each quarter called an EICE checklist (Exide Internal Control
As detailed previously in the internal failure tollgate, the snowball effect of adding layers of cost in each successive WIP center will become a loss at some point when production quantities are overstated.
Environment). Most of the processes the controller is accountable for are asset related and revolve around inventory and fixed assets. Accounting professionals know the importance of not over-stating assets in light of the conservatism principle and the consistency necessary when applying materiality and disclosure principles to operational decisions.
Monitoring of the five tollgates of inventory movement is critical for materials management and the desire for an annual physical inventory that results in minimal financial write-off. The tollgates include:
1. Receipt of material
2. Internal failure
3. Production reporting
4. Bill of Material (BOM) accuracy
5. Shipping verification
These five check points are validated at fiscal year-end by a periodic physical inventory.
RECEIPT OF MATERIAL
Inventory verification is not limited to cycle counts of the various raw materials, purchased parts, work-in-process (WIP) and finished goods (FG) but includes the validation of these various inventory types on the receiving docks. As an example, it is
a daily routine that nearly 30 truckloads of lead (Pb) are delivered with various alloys and receiving tickets specifying the pounds and unique part numbers. One of the EICE checklist verifications calls for the dock workers to document the physical weighing of all “pigs” (60 lbs.) and “hogs” (2,000 lbs.) of each alloy type each day. (Pigs and hogs were smelter terms given to designate these blocks of Pb.)
These pigs and hogs when cast by the supplier might vary from 55 – 65 lbs. or 1900 – 2100 lbs. respectively depending on the rounding on the top of the mold and the amount of dross. The controller’s job is to ascertain these weights were being performed daily and are compared to what was entered into the Enterprise Resource Planning (ERP)2 software. Obviously, receiving 2,000 lbs. of a product onto the books when physically 1,900 lbs. is taken into possession will result in overpayment and an eventual inventory loss.
Other inventory related check points are spare parts used in the repair and maintenance of production equipment. Although not listed on the balance sheet as inventory per se, the expectation from SOX as implemented by Exide is to control materials within a facility. Exide uses a software platform to manage spare parts within a caged controlled area and maintains inventory levels to ensure parts are available to service equipment.
Exide holds about $1 million in spare parts at this facility, all of which are expensed when purchased and received. The threshold of materiality is not met, allowing immediate expense rather than capitalization of the cost until used.
SOX regulations, as interpreted by Exide’s internal and external auditors, expects
monthly cycle counts to establish that spare parts inventory is being managed and controlled, indirectly proving the operating budget and forecasts are being adhered to and promoting confidence that the product’s various raw material, WIP and FG inventory accounts are being monitored daily.
INTERNAL FAILURE
This rather disconcerting phrase is commonly referred to as scrap in manufacturing environments. Also called nonconforming product, scrap is a normal outflow of processes that are inherently flawed. A nominal amount of scrap is expected from destructive testing, but non-destructive scrap is a significant aspect of plant management.
Six Sigma3 is a study of process variation and seeks to align company goals with shop floor operations in continually reducing scrap and increasing the velocity of output through a pull system of inventory. Statistical process control (SPC)4 drives much of the methodology today and accounting professionals play a major role in providing data and understanding of the causal effects of production and scrap on the financial statements.
The escalating costs of quality becomes most challenging as the dollars snowball into “failure.” Internal failure is directly related to inventory on the balance sheet as external failure is the other side of “failure” resulting from warranty claims and potential liability issues outside of a facility’s four walls. Warranty claims may require product replacement, refunds or future costs like contingent liabilities for demurrage, legal fees and medical expenses. However, these potential liabilities do not affect the inventory balance carried as an asset on the balance sheet.
A primary responsibility of the site controller is to walk the plant floor daily to assess current issues and their potential impact on the weekly financial forecast. Inventory stacked up between WIP centers, extraordinary unprocessed scrap,
operators standing idle, and equipment being repaired were a few of the issues to be investigated by the accounting function.
American manufacturing companies have adopted a concept called Gemba5 where management must go to “the real place” to understand the issues, opportunities and constraints facing the workers. The evolving role of accounting professionals, particularly management
A primary responsibility of the site controller is to walk the plant floor daily to assess current issues and their potential impact on the weekly financial forecast.
Inventory stacked up between WIP centers, extraordinary unprocessed scrap, operators standing idle, and equipment being repaired were a few of the issues to be investigated by the accounting function.
accountants, requires leadership both in the office and on the production and distribution floors, with a deep understanding of their businesses.
Exide was an Original Equipment Manufacturer (OEM)6 for Toyota, among others, and much of the Toyota Production System (TPS)7 was implemented to serve the customer. Japanese concepts such as
jidoka, poka-yoke, 5S, and takt time8 focus on quality improvements and efficient production.
PRODUCTION REPORTING
Another important objective of the Gemba walks is to observe the production reporting processes that result in the creation of the next level WIP with reduction of lower-level WIP. Each successive production level adds direct materials, direct labor and overhead in the defined BOM and labor routings. Exide uses direct labor as the cost driver to allocate the overhead pool based on industrial engineering time/motion studies.
Experience associated with Exide’s past practice as a production driven company proves a tendency to over report quantities manufactured or assembled to meet the required corporate schedules9. Each pallet of production generates a bar code label with the part number and quantity, thereby relieving the sub parts used in this particular product. If a bar code is generated in error or intentionally without physical production taking place, that ghost pallet would eventually be determined as nonexistent and deleted.
The corresponding sub parts display as a negative on the costed stock status and result in a gain. The netting of the loss from the nonexistent bar code and the gain from sub parts would be an overall loss due to the conversion costs of direct labor and overhead being applied in error by the ERP system.
As detailed previously in the internal failure tollgate, the snowball effect of adding layers of cost in each successive WIP center will become a loss at some point when production quantities are overstated.
Cycle counters are employed 24/7 in both manufacturing and distribution sides of the operation to maintain control of the location of inventory produced. The unique bar codes have a unique warehouse bin location where material handlers “pick and put” these pallets in appropriate locations, which numbered over 15,000 bins. The role of the cycle counters is to continuously check the bin locations with the product
located there with use of radio frequency identification (RFID)10 scanners.
Part of the SOX 404 EICE quarterly checklist is reporting and signing of bar codes that would be “killed” due to errors in production reporting. In order to maintain independence of the audit by these counters from production reporting, cycle counters reported administratively to the materials manager. In addition, these counters reported functionally to the inventory accountant and controller for resolution of reporting issues in production and also internal failure.
BILL OF MATERIAL ACCURACY
Tollgate four is a frequently overlooked facet of manufacturing control because if it’s in the ERP software, it must be right. Seriously though, ongoing verification of the bills of material for each manufactured product with shop floor reality is crucial for managing inventory and the potential for loss (or gains).
Competing objectives from the quality assurance function’s (QA) material usage ranges and cost accounting standards (one point, no range) adds to the potential for inventory losses. Suppose the QA standard allows for 2.4 – 2.6 lbs. of Pb to be used for a battery strap that connects the inner plates. The BOM pounds designated is 2.5 and is used for costing the product and in generating the purchase orders based on this standard usage.
QA may routinely check the mold setup and, in conjunction with shop floor operators, cast the strap at the high end of the range because of a belief that more is better in making a stronger strap. Casting to a 2.6 lb. strap would result in a 0.1 lb. loss for every battery produced in that mold setup. What if a newer mold is installed with engineered cavities to require less lead per strap with the same quality? This could result in a typical 2.4 lbs. setup and a 0.1 lb. gain per battery produced on that line.
Imagine 30,000 batteries built in one day could result in a 3,000 lb. loss or gain, which translates to more than $1,000
to the bottom line. The potential for an inventory shortage of a certain item could have severe consequences for the operation’s up time. Stocking out would result in idle labor, scrap and extra shifts at an overtime premium.
An additional facet indirectly related to BOM is the common use of substitutions for orders. If sufficient quantities of a cold cranking amp for a certain Battery Council International (BCI) Group Size11 is not available, but a larger one is, there is a cost to be incurred. Suppose the Cold Cranking Amps (CCA)12 ordered is 525 but only a 600 is in stock and the cost differential is $1.50. Fulfillment of the order, at the same sales price, will result in a substitution loss. If this substitution transaction goes unreported, an inventory loss will occur by the cycle counter or, if missed, at the annual physical inventory. Inventory errors are self-correcting. A miscount or omission in one period is typically adjusted accurately in the next count.
SHIPPING VERIFICATION
The final tollgate is a major threshold where fully priced inventory stock must be controlled as customers’ performance obligations are met. The transfer of ownership may occur at the facility’s docks or at delivery to the customers’ warehouses and would impact revenue recognition but that is a topic for another day.
The essence of this fifth tollgate is movement from inventory to cost of goods sold (COGS) and recording of sales revenue with accounts receivable. Exide typically has 125,000 orders open (individual batteries to be shipped) at any given time with many of those orders days out. The fulfillment of an order is very structured, with material handlers “picking” from warehouse inventory bin locations the various types and quantities for labeling and preparation on a distribution line.
Once a shipment is assembled, the pallets are “ship confirmed” in the ERP system, thereby crediting inventory and debiting COGS. The corresponding debit
to the customer’s accounts receivable and credit to sale revenue would complete the transaction.
Once all pallets are loaded on a truck, the door is sealed with a tag number and the information is communicated to the security guardhouse. A final check is made by the guard, including their approval that the seal is in place. The physical custody of inventory at this stage is crucial, as an asset value snowballs through the various WIPs to finished goods. This final tollgate, as the asset leaves the balance sheet, ensures the security of full costed material movements to the customer.
THE ROLE OF THE ANNUAL PHYSICAL INVENTORY
To ensure the operating responsibilities are being adhered to at each of the five tollgates, an annual physical inventory is conducted to verify the accuracy of the perpetual system and the manual inputs that standard work instructions drive in the day-to-day operations. Paramount to all companies is that written policies and procedures in effect must be followed with an end-of-year physical inventory validating the processes and tollgates of control.
The importance of this annual count is shown by the presence of officials from internal audit, external auditors and supervision by the site controller. Materials planning and production personnel are excluded from the oversight due to potential conflicts of interest in the outcomes.
Assurance that proper receiving and shipping cutoffs are followed, and production/scrap reporting is completed prior to an inventory freeze on the books, may be likened to slowing the flow of a stream. It’s easiest to cross a stream when the water is down and that is similar to the time that a physical inventory is conducted.
Many companies seek to have this periodic count coincide with fiscal year end to facilitate the recording and reporting processes for inventory. Companies elect a year end at a slow time
for sales to facilitate year end closings that will reduce the opportunity for errors. With expedited closing schedules, the probability of mistakes increases, impacting the financial statements.
Exide’s fiscal year end was March 31 due to that being the slowest time of year for battery demand and shipments. The annual physical was normally in late January but in recent years was moved to the third weekend of March. Stopping the flow of the inventory stream at this time of the year is easier, although still a complex event that required much advanced planning and three days to prepare, count and record the stock levels on hand.
Inventory is typically in the $20 million range and with an average turnover of 12 times, one can see the impact of the count is verification of $240 million in COGS that flowed through the facility. Even the $20 million on hand was questioned by both audit teams as to the presence of slow moving or obsolete product on hand in inventory.
To reduce the risk of intentionally not writing inventory down in the normal course of business, the Exide corporate office sought to encourage the timely write-down of inventory to saleable or recyclable values by instituting a Material Request Disposal Authorization (MRDA) process that enabled plants to write down product that was overproduced or unsold due to corporate build schedules. These scrap dollars are reclassified from the plant to the division level at the corporate office since they are responsible for the over production or reduced customer demand.
Blemished batteries are also sold for 50% off the normal cost, and this further encourages plants to do the right thing and not harbor scrap on the books at full value.
The primary problem is defining a significant inventory variance, either in dollars or as a percentage of total inventory, and determining the actions taken by corporate officials and external auditors when these limits are exceeded. This is crucial because the results of a physical inventory count reflect the effectiveness of a corporation’s operational
controls and confirm that financial reporting is reliable and free from material weaknesses.
Understanding corporate governance in asset valuation, particularly inventory, is crucial for financial leaders in manufacturing companies. Exide used an ERP system with real-time reporting that integrated financials with materials planning, production, costing, distribution and inventory movement.
Knowledge gained from ongoing write-downs improves estimates for contra allowance accounts and gives corporate leaders insight into policies and procedures when inventory losses exceed the annual allowance.
Understanding corporate governance in asset valuation, particularly inventory, is crucial for financial leaders in manufacturing companies
KEY CONSIDERATIONS
Once an annual inventory is complete, a drill down into the data on the gains and losses by category and part number will reveal where further investigations are needed. Please see this article on the TXCPA website for questions that should be addressed.
McNally13 emphasizes that COSO’s key concepts pertaining to internal control are enduring. The 2013 Framework still provides for three categories of objectives – operations, reporting and compliance –and focuses on five components of internal control – control environment, risk assessment, control activities, information and communication, and monitoring activities.
Management accountants and controllers at the manufacturing and distribution level must be the leaders for
operational and financial control. But it requires more than technical expertise in accounting. Ethical leadership willing to do the right thing is a must, while developing relational skills to interact with various personalities is critical to personal and organizational success.
Understanding your industry and the COSO Framework is essential in establishing tollgates of control to ensure all stakeholders can rely on the financial statements.
References
1. Sarbanes Oxley Section 404.
2. SAP. What is ERP?
3. American Society for Quality. What is Six Sigma?
4. Hessing, T. Statistical Process Control (SPC).
5. Lean Enterprise Institute. Gemba.
6. Corporate Finance Institute. What is an Original Equipment Manufacturer (OEM)?
7. Toyota. Toyota Production System.
8. Quality Gurus. Glossary of Japanese Lean Terms.
11. Battery Group Size. How to Choose Your Battery.
12. Walker, D. (2022). What Does A CCA Battery Ratings Mean?
13. McNally, J. S. (2013). The 2013 COSO Framework & SOX Compliance: One Approach to an Effective Transition.
DR. JOEL K. FAIDLEY, CMA, is Chair and Professor of Accountancy at East Tennessee State University. Contact him at faidley@etsu.edu
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