Wednesday, June 2, 2010

Personal Responsibility vs. Professional Responsibility

Woman Sues Google Over Walking Directions

Lauren Rosenberg is suing Google because the walking directions she got via her Blackberry and Google Maps put her onto a busy road where she got hit by a car.

On its version for computers, Google Maps suggests one alternative for Rosenberg's route. It also highlights a disclaimer: "Use caution — This route may be missing sidewalks or pedestrian paths."

The mobile version of Google Maps, however, does not come with that warning.

Other warnings designed to place personal responsibility where it naturally belongs:

On matches: "Caution: Contents may catch fire."
On a mattress: "Do not attempt to swallow."
On a kitchen knife: "Keep out of children."

Where do we draw the line in the sand between personal responsibility for our actions and blaming others for our actions?

Accountants play an essential role in verifying the accuracy of financial statements. We are "public watchdogs" that assure the public that "financial statements are free from material misstatement.'

The Supreme Court affirmed the public interest nature of auditing in United States v. Arthur Young & Co. The Court ruled that:
by certifying the public reports that collectively depict a corporation's financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client. The independent public accountant performing this special function owes ultimate allegiance to the corporation's creditors and stockholders, as well as to the investing public. This 'public watchdog' function demands that the accountant maintain total independence from the client at all times and requires complete fidelity to the public trust...

We don't deny our 'public watchdog' function; however, auditing firms are often the main focus of legal action where a corporate fraud has taken place, even if they have had little direct responsibility for the fraud. This is because they have insurance coverage for legal action of this kind, and their financial resources are therefore greater than those of others implicated in the fraud. Therefore, accountants often claim they are sued because they have deep pockets, not because of bad audits.

Litigation against the profession is governed by the doctrine of joint and severable liability. The doctrine of joint and several liability makes each defendant fully liable for all assessed damages in a case, regardless of the degree of fault. In practical terms this means that, even with no evidence of culpability, a company's independent auditors are almost certain to be named in any action filed against that company alleging financial fraud for no reason other than the auditors' perceived deep pockets or because they are the only potential defendant that is still solvent.

The liability burden cannot be measured only in dollars and cents. Other effects are less easy to detect, but are no less costly. For example, groups targeted by frequent litigation now practice risk reduction as a matter of professional survival. Doctors, for instance, are avoiding such fields as gynecology and obstetrics. The result is a scarcity of practitioners in crucial specialties.

Abusive and unwarranted litigation is a problem not just for the accounting profession but also for business and the economy generally. One obvious effect is what the media has called the "tort tax" - that is, the increased cost of goods and services caused by runaway litigation. Rosenberg is seeking more than $100,000. Should she prevail, that cost will be passed on to all of us.

Is There Life After Retirement?

It seems a lot of times that half our mental effort goes into trying to figure out how to make sure that the business continues after we're gone. Whether it's due to an untimely death or retirement.

We, like so many small business owners, find that there's a troubling discord between our goals as baby boomers and the goals of our Gen Y staff. We've generally been happy performing the same tasks day after day, year after year, and buildng a successful firm. The question becomes with Gen Y is how to create a challenging and engaging profession that provides constant opportunities for growth from a profession dictated by standards and regulations.

Our main goal has been to build a firm that will still be around after we're gone and is able to provide us with a financially secure retirement. This goal is dependent on future generations being able and willing to continue a business in which we have invested a better part of our lives.

A recent article interviewed a baby boomer and a Gen Y to have them describe their current goals for their profession. The baby boomer was practice growth, client retention, business continuation, and similar issues. Gen Y was hours - how to work fewer hours. We believe in both.

Firm growth and business continution while working the fewest hours possible. We see that as not being lazy but being innovative and creative. Accomplishing both goals is impossible without technological innovations such as the paperless office or being creative with practices and procedures. Many ideas fail. Some even create more problems than they solve. Those bad ideas get scrapped and the search continues on.

Ultimately it's up to the individual to find ways to grow and learn and not work 100 hours per week. It's up to the individual to present innovative and creative ideas to managers and partners. These are the ideas that will accomplish both goals. But the ideas have to go beyond reducing time on any individual engagement. The ideas have to be firm wide. Eliminating inefficiencies, finding growth opportunities (personal and company), discovering new areas of expertise - all of these should be the goal of both the baby boomer and the Gen Y. Otherwise, it's just a lot of years and a lot of hours performing the same mundane tasks.

Business continuation should be a long process often taking years to accomplish. The transition from one generation to the next involves planning and creating a method by which the identity, personality, and integrity of the company is maintained with little or no impact on the clients or customers. Finding the right people to take the business into the next generation of owners and managers is key. Hiring the right person is just a building block on the foundation of business continuation. Hiring an existing owner/manager is expensive and can potentially be counterproductive if their management philosophies are so ingrained they are incapable of conforming to their new role. The ideal situation is to create an owner/manager from scratch with their training being on a parallel track with the business continuation plan.

Whatever the situation, a plan should be developed, agreed on, and implemented by the owners several years prior to the departure of any owners. Areas covered should include the type and qualifications of the people to be hired, benchmarks for staff educational and professional development, buy-sell agreements, staff compensation and stock purchases, and many others. The goal must also be well defined. When and how do the partners desire to transition out? Finally, take the kick and hope you make it between the goal posts.

Monday, May 31, 2010


Just the other day I was reminded of the importance of insurance. People have differing opinions on insurance and our clients are no different. Some think that paying for insurance is just giving money to large corporations that will never pay for a claim. Others, like us, believe in the importance of insurance and understand how in the blink of the eye your financial stability can be at risk.

Every time, without fail, when talking to a new client about choosing an entity type, we discuss the level of liability associated with the business. If there are employees we will discuss employee benefits including those involving insurance. It has now gotten to the level that businesses will be required to provide insurance for their employees. While I believe that these choices should remain in the hands of the individual/business owner, it reflects the level of intolerance most of us have in paying for the costs of the uninsured. The driver of the car that caused my accident didn't have insurance which puts it on my insurance causing me to pay the uninsured motorist deductible. That raises the question, why does uninsured motorist have a deductible? But that's a rant for another day. The point being that if I was not insured I would be in a financially difficult situation to make the repairs. The other car was not drivable and by making the decision not to have insurance, at the very minimum, his job is at risk.

I can't think of any other type of good or service that has as many varieties as insurance: life, health, auto, homeowners, dental, cancer, liability, workers' compensation, unemployment(state and federal), business continuation, and I'm sure there are many more I've forgotten.

It is impossible to escape the risks associated with everyday life. And it is important that even though you may be fortunate enough not to have to make a claim, you, your family, your assets, your business; all are protected from events that are impossible to foresee.

Friday, May 28, 2010

In The Beginning

This is the first post for our blog. We've got a multitude of ideas for our blog so stay tuned.