30
Jan
13

Public Accounting vs Private Accounting: Making the Transition

My colleague, Uma, recently posed about the question brilliance or consistency.  It reminded me of a discussion I often have with staff accountants who move from public to private accounting.  Accuracy or speed?  They are used to “passing” on large adjustments and may find the transition to private difficult where materiality is much smaller.   They often question why they need to sharpen their accuracy skills in their new role.  Public accounts focus on a certain view of materiality, but as private accountants, they need a new perspective.

Here’s how I view it from the private side:

To do or not to do – that is the question.  When you assess materiality on the private side, you often need to start with saying “will this process have a material effect on our organization’s financial reporting?” – period.  Assess the materiality of the process, not the transaction.  If the effort will not materially impact financial reporting (it may have other management or risk mitigation benefits to consider separately), then its possible the effort may be removed from the process.   One example is straight lining leases – organizations could evaluate the materiality of reporting leases on a monthly accrual basis instead of straight lining them over the life of the lease.  If there is no material impact on straight lining, it may not be worth the effort to make the adjustments monthly.  Instead, opt to calculate the materiality of the departure from GAAP and document the immateriality of the decision.  Don’t forget to reassess materiality at a regular interval, such as annually.

 If you’re gonna do something – do it right.  Ok, so you’ve made the decision a process is necessary and material.  Private accountants are kind of like baking soda – one small mistake, and the whole cake doesn’t rise.  We’re responsible to ensure we arrive at year-end without material misstatements. If you overlook the small things throughout the year, or let reconciling or accuracy slide, you may take away any room for judgment calls at year-end around materiality because the materiality level has already been absorbed by the small errors throughout the year.  Additionally, if small errors are making their way through, its difficult to prove large errors are prevented.  If you’re gonna do something – do it right.  If there is a situation when you decide the best judgment is to deviate from policy, document why you are making the exception and the immateriality to isolate the transaction.

Don’t forget to step back and look at the big picture.  The transition to private may put you into the weeds.  It takes a year to prepare for auditors for a reason – there are a number of transactions to assess, process, and allocate.  But don’t get stuck there – remember to take a step back and look at the big picture.  Do you analyze the work you’re processing?  Does it make sense in the big picture?  Do you understand what the inputs are, what the risks to completeness or accuracy are?  Don’t get so bogged down accounting for the volumes as fast as you can that you miss the opportunity to make sure it all still makes sense.  Stopping to analyze may seem like a speed bump when you’re trying to get to done, but in reality, it’s a springboard to accuracy and the path to immateriality.

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