Over the coming weeks, companies across Australia will be preparing their budgets for the new financial year. Numbers need to be crunched and 2017/18 budgets need to be locked in for board approval.
As a result, managers across the country will be spending some quality time with their company accountants, and this increased interaction means business managers are suddenly having to deal with much more accounting terminology than usual.
Fear not. I’m Sam from accounting — or at least I used to be before joining Business Insider — and I’m here to help.
I spent 18 months as a management accountant following almost seven years in professional services. Below is an incomplete guide to the type of discussions one may need to prepare for, phrases that accountants in professional services have been known to say, what your tax accountant is thinking when they’re saying certain things, and what your friendly auditors talk about on the job.
“I hate the tax office”
Derivatives of this statement are often used by accountants, often involving somewhat more colourful language and accompanied by pen-throwing and other acts of frustration in Business Services divisions (the area of accounting that provides tax advice / preparation of financial statements). The Australian Tax Office (ATO) is notoriously hard to deal with — think about a hotline for a utility company or your worst experience with a telco — as professional accountants are transferred and put on hold while trying to solve their clients’ tax problems.
“Just put it in sundry expenses”
To get an idea of how accountants rely on sundry expenses, imagine your kitchen at home with no bin. You’d constantly end up holding rubbish with no idea where to put it. The sundry expense line item has acted as a bit of a life-saver for many an accountant who’s under pressure handling multiple client engagements and trying to finish jobs. In financial services, sometimes a minor (immaterial) adjustment is needed to balance the financials. Instead of adjusting retained earnings, managers can be heard instructing a tried and true fix at the end of a long day/week/busy season: just chuck the balancing entry into sundry expenses and be done with it.
“The budget is the budget”
Management accountants (or MA’s – accountants who work internally for a specific company) go back to this tried and trusted response when budgetary pressures start to mount. Typically the budget is set out by a board / management committee at the start of the financial year. Rarely is it flexible. This lack of flexibility is cited by MA’s as an irredeemable fact of life – like death and taxes. Budget conversations often go like this:
Operations Manager: Can we bring forward the timing of the new grad hires to February? I want to get them trained up before we roll out the new software platform.
Management Accountant: (Shakes head) Unlikely, pending CFO approval.
OM: Why’s that?
MA: That will put us over budget for Q1.
OM: (visibly frustrated/confused that a subordinate is defying them)
MA: (shrugs) The budget is the budget. You can take it up with the Board.
“I can’t hear you, it’s month end”
Alternatively: “not right now”. When month-end tasks are due, accountants often do the equivalent of covering their ears and singing “la-la-la-la” until the person with the query gets the message to return later. There’s a laundry list of stuff to do as the end of the month marks a key check-point for accountants to ensure their business is running smoothly. Bank reconciliations (i.e. let’s make sure we have as much cash as we think we do) are the most common. Adjustments for prepayments (e.g. prepaid insurance) and depreciation (e.g. motor vehicles) are also standard – unless the client just ignores their monthly recs and waits for the auditor to do it at year-end.
“T&E is how much?”
Expense accounts for Travel & Entertainment has left many an accountant shaking their head in disgust. Clients and/or staff are fond of booking anything and everything through T&E. Whether it’s appropriate or even work-related at all is another question. Random taxi fares, lavish client lunches and “miscellaneous” expenses whilst on the road are all common. Now I’m sure many firms have control procedures in place (e.g. 5-star accommodation on a business trip has to be cleared by the board), but if T&E has somehow quadrupled from the prior year then accountants will be going straight to the ledger detail ready to ask some tough questions.
“It’s immaterial, move on”
In the audit game (also known as Assurance Services), accountants express their audit opinion with reference to the concept of materiality. Auditors like to joke about where to draw the line on a material balance – if an item’s immaterial, it means moving onto the next priority, which means finishing the job quicker. The level of materiality changes depending on the size of the client and the level of audit risk. For larger companies, the balance at which an amount is material is generally higher.
“Just look at last year’s work-papers”
Another classic from the audit profession. Once an audit job is complete, the audit file will be signed off and closed. Depending where an auditor falls on the laziness spectrum, when next year’s audit comes around the prior year work-papers will either be: used as a useful reference point, with due regard given to new business conditions (not lazy), or used as the primary basis for the current year’s audit, with vast sections of the prior year workings just copied outright (very lazy). Most auditors probably fall somewhere in the middle. Of course (disclaimer), any good auditor will tell you that they won’t just copy last year’s work, and senior auditors will commonly instruct junior staff to use the previous year’s work-papers as a useful guide.
“It would be great to see the data both ways”
As an MA, this isn’t what you want to hear. Say you’ve just spent the morning preparing a detailed spreadsheet showing gross profit by product line for the 1st quarter. Revenue and cost of sales data has been neatly summarised, with a series of charts for good measure. The CFO reviews the figures with approval and then suggests that it would be great to see the data both ways; this means that you need to prepare gross profit figures by product line AND region – thus adding another three hours work to your already-busy schedule preparing the budget and updating month-end cash flow figures.
“Pass the beef jerky”
OK, you won’t really hear this a lot. But the broader theme is this: when you’re out at a larger audit client sitting with your team in a meeting room for weeks on end, whoever has the snacks becomes king.
I once saw two co-workers strike a deal where one offered the other $100 in five years from the agreed date, on the grounds that he complied with a request to immediately share his home-made beef jerky with the audit team. In true accountant fashion, it was stipulated in the written agreement that the $100 would not be adjusted for the time value of money, effectively discounting the future amount payable by the annual rate of inflation.
“It’s a timing issue. Budget assumptions”
This is a form of code-speak for management accountants. Used in response to management queries about budget gaps, it can be translated to: No, we haven’t forecast incorrectly and won’t accept any blame for how certain costs are tracking against budget, it’s just a timing issue that we’ll catch up next quarter. (Of course, this can commonly be heard even if it’s for items that only accountants are responsible for such as salaries & wages).
“What’s fair value? Take a punt”
Alternatively: how long is a piece of string? Assessing the fair value of an asset in a set of financials is sometimes akin to throwing a bit of grass up into the wind and seeing how far it travels. Within a large listed entity, there’d commonly be numerous assets requiring financial services accountants to make a fair value judgment at year-end. Although the accounting standards provide guidelines for fair value recognition, applying discounted cash flows to, say, a non-listed bio-technology subsidiary puts the onus on accountants to take a stab in the dark and sign off.