Dave Burt, CPA: The Shirtsleeve Accountant’s Blog

The Accounting Profession, a Good Choice?

Times read: 69

07/02/08

By Dave Burt, CPA -

Dear Seth.

The accounting profession has never been better as a career choice. With Sarbanes and the IASB and, they say, 80% of the members of the AICPA retiring within 10 years---hey, we could, getting older each day--things haven’t looked rosier for the profession since green eye shades and black sleeve garters faded into history. I just talked to my contact at Robert Half International and they are still placing accountants at places like new home builders! Imagine that? Accountants may not have the high profile exposure of indigent super drunks flashing across the screen at your local bijou, but we’ll always eat. And eat well, mind you.

Check out this site:

David Burt

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Foreign Income and Living Expense Exclusion

Times read: 298

05/05/08

By Dave Burt, CPA -

Dear Kalon,

As a U.S citizen or resident alien your worldwide income is generally subject to U.S. income tax. However, the IRS allows a foreign income and living expense exclusion for those having a tax home (living and working) overseas. The maximum foreign earned income exclusion for 2007 is $85,700, which is multiplied by the ratio of the number of days in country divided by 365. E.g., $85,700 x 365 days in country / 365 days a year = your maximum income exclusion.

In addition, if your employer contributed to your housing and included that amount in your wages, you may also be able to deduct a portion subject to (1) a limit (varies by country but usually, $24,720) and (2) by a housing exclusion base @ $36.12 per in country day. From our example above, 356 days in country x $36.12 per day = $13,184 exclusion base.

Simple illustration.

You had personal service income of $185,000 for a full calendar year in country inclusive of employer paid living expenses of $35,000 (they paid 100% of your qualified living expenses.) Your host country has a $24,720 limit set by the IRS. So, $24,720 limit – 13,184 base = 11,536 over base. Then: $11,536 over base x 18% ($35,000 100% employer provided living expenses / $185,000 total income) = $2,076 housing exclusion. Finally, add together your maximum foreign earned income exclusion of $85,700 and your housing exclusion of $2,076 = $87,776. Then, from this amount subtract any deductions that are allocable to the excluded income. The result would be deducted from you total income using Line 44, Form 1040. Whew!

You may want to check to see if you are subject to your host country’s income tax laws. I think the reason for the exclusions originally was to lessen the double taxation burden on overseas workers. See tax history link: http://www.aca.ch/hisustax.htm

Check out the following links for updates and rate changes. And think about contracting a local CPA for individual tax advice before you make a decision:

http://www.irs.gov/pub/irs-pdf/p54.pdf

http://www.irs.gov/pub/irs-pdf/f2555.pdf

http://www.irs.gov/instructions/i2555/ch02.html#d0e555

David Burt, CPA, So. Cal.


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Everything a Manager Ever Needed to Know

Times read: 413

03/14/08

By Dave Burt, CPA - About 20 years ago I use to read this magazine that would run Dewar’s ads that would profile top executives from big name firms. Usually, they were CEO’s or Presidents or alike. The ads would tout their accomplishments, education, etc, and list their favorite books and favorite drink (Dewar’s, of course.) One of the books that kept coming up over and over was How to Win Friends and Influence People by Dale Carnegie first published in 1937. I decided to investigate Mr. Carnegie’s works and, in the end, it changed my life. After about five years of practicing winning friends (did I mention I had only one to start?) I was, professionally and personally, a new man. Well, let’s say, a better manager, at least. To begin this transformation, I did just what Dale instructed (influenced little self-centered) me to do by cutting out (a copy of) the summary of techniques offered at the end of each chapter. I laminated them and placed them in places where I would surely not misplace. The following are his (3) Fundamental Techniques in Handling People:
“Don’t criticize, condemn or complain.” While that sounds hard, and it is, it does require you to think about what you are going to say before you say it. Which, oh, forlorn, we don’t, often enough. So, to make it easier on me, I developed a habit. I would only talk in fact and feelings. I got this from Dragnet’s Jack Webb when he would say to the overly excited landlady, “Just the facts, madam, just the facts.” It is just as powerful, if not twice so; to just point out that an entry was made wrong, then to condemn some poor staff accountant, who, most likely already knows about the error and is already living in chagrin.
“Give people a feeling of importance; praise the good parts of them.” Now I’ve heard that the body’s desire to feel important is ranked second only to the desire for an ice cold beer with a Mexican meal. Let’s give you an example. Needing a pick me up after lunch, I got in the habit of fixing a pot of Starbucks in the afternoon and offering to share it with the “guys” in Quality Control. So it wouldn’t go to waste, of course. When, occasionally, I would forget or didn’t feel like it, I would hear cry’s of “You don’t like us anymore!” I’ve a hunch that they felt important to be asked to share a pot of coffee. Such minor things aren’t, sometimes.
“Get the other person to do what you want them to by arousing their desires.” Don’t we all want everyone else in the office to do what we want them to do? C’mon, you know you do! We don’t want them to be robots, just get their work done without gossiping or arrive on time most of the time or become mysteriously errorless. We want, as managers, to have them do whatever makes our life easier. Right, so, how do we do that? We must first make them want to make our life easier. They need to desire to see us smile as we gaze over our little fiefdom. Well, how? What’s the secret, pal? That, my friend, can be found in one or more of Dale’s Twelve Ways to Win People to Your Way of Thinking:
• “Avoid arguments."
• "Show respect for the other person's opinions. Never tell someone they are wrong."
• "If you're wrong, admit it quickly and emphatically."
• "Begin in a friendly way."
• "Start with questions the other person will answer yes to."
• “Let the other person do the talking."
• "Let the other person feel the idea is his/hers."
• "Try honestly to see things from the other person's point of view."
• "Sympathize with the other person."
• "Appeal to noble motives."
• "Dramatize your ideas."
• "Throw down a challenge."
David Burt


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Explanation of price-to –book ratio

Times read: 539

02/16/08

By Dave Burt, CPA - Dear Keegan Wilson

You can get a good explanation of price-to –book ratio or price-to-earnings multiples from many sources (See: http://en.wikipedia.org/wiki/P/B_ratio).

However, to me the value in these ratios is historical only. What has happened? What was management lucky enough to do? What did the stock market trip over itself and rationally do or not do? Which micro-brained, till dipped politician spooned with whose soft money?

While a nice little exercise in simple math, once calculated, it is no value outside the exercise itself. If you buy stock based on one company’s P/B ratio over another, good luck, fella. Even if they are in the same industry, that means they are more comparable but of no more value. Once you got the calculation down, move on. The future, haven’t you heard, can’t repeat itself.

David Burt

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Regarding Cost Accounting - Formulae in Standard Costing.

Times read: 1309

02/11/08

By Dave Burt, CPA - Dear E.N.Ananthanarayanan

Cost accountants’ utilize various tools in an attempt to draw management’s attention towards opportunities and problems, to solve problems and report historical data in a usable format. For example, the Cost-Volume-Profit (CVP) formula:

(Unit Sales Price X Units Sold) – (Unit Variable Costs X Units Sold) – Fixed Costs = Operating Income

This formula can be used to calculate how much earnings a certain product will contribute (contribution margin) towards paying for factory overhead and toward generating any operating profits. Its contribution margin is figured by subtracting variable costs (costs directly identified with the production of the item) from sales. For example, $16.99 Sales Price minus $ 5.39 Variable Costs = $11.60 contribution margin per unit (CMU). CMU can be used to project operating profit if you have a sales projection and estimated or budgeted fixed costs. For example, If, CMU = $11.60, units sold = 5000 and fixed costs (FC) = $30,750:
5,000 units sold X $11.60 CMU = $58,000 CM - $30,750 FC = $27,250 Operating Income (margin)

If you want to determine how many units the company must sell to break even, you would set the above formula’s operating Income to zero and solve for Units Sold. And how do you find the number of units that must be sold to reach a budgeted sales target? Add that target amount to your Fixed Costs and solve for Units Sold.

When sales managers consider adding a new product to the line up, they consider many things. For example, they must decide on target market, packaging design, unit size, case size, display type, and distribution method. But before they get too far into to the process, they need to have some idea how many units they can expect to sell, for how much and how much it will cost. Sometimes sales has a product they sell by the truck load and makes tons of money on, and others they price just to cover their out of pocket (variable) costs because it fills out the product line.

Where does a cost accountant come into the picture? What kinds of tasks do they perform? Let’s consider a cost accountant working for a food manufacturer. The cost accountant might start by being an important member of the product development team. She would be present on the discussions and decisions on packaging type and size, ingredients, case size, production line, distribution channels, etc. She may bring with her historical sales and gross margin numbers on similar products the company has sold. She may help bench mark a competitor’s product by analyzing the ingredients statement on the back of the sample package.

Once a decision has been made on package size, design, case size, ingredients (bill of materials), and production and packaging lines to be used, the cost accountant’s first job may be to create a new bill of materials (BOM) for the product. A BOM is detailed list (in quantities and costs) of direct materials used for one unit (e.g., case of 8 oz pretzels) of the product. Often, the job is eased by the fact that the company has other established products that are similar. So, sometimes it is as easy as cut and paste and modify. Other times, say, if the company wants to produce a product that’s similar to a competitor’s the job is much harder.

The cost accountant’s next task might be to determine direct labor. The type of product and pack size will normally determine which production and packaging lines will be utilized which determins cases per hour and manning (direct labor.) This production and packaging route will give the cost accountant her variable direct labor costs per unit and an allocation base (e.g., direct labor hours that can be used to allocate overhead. For example, based on an annual budget, for every direct labor dollar spent, three dollars are spent on factory overhead. So, factory overhead is 300% of labor.

Next the cost accountant constructs a gross margin analysis of the new product in columnar format in Excel.

Unit sales price = $16.99

BOM (Direct Material costs) = $3.34

Direct labor = $2.05

Total variable unit cost ($3.34 + $2.05) = $5.39

Contribution margin per unit= ($16.99 sales unit price - $5.39 variable cost/unit) = $11.60

Then, allocate factory overhead on labor costs, 300% X $2.05 direct labor = $6.15

Total production costs ($5.39 variable costs + $6.15 allocated factory overhead) =$11.54

Gross margin ($16.99 sales price – $11.54 total production costs) = $5.45

Gross margin percent ($5.45 / $16.99) = 32%

The cost accountant would bring this analysis to the next product development meeting for review and discussion by the group. If the gross margin percent was out of place compared to other similar products or not close to a target gross margin, then rework maybe necessary. When an acceptable percent is acquired, then other costs are added on such as special promotional costs of the product roll out, cost of coupons that might be issued, transportation, etc.

Both the CVA formula and gross margin analysis are useful problem solving tools for a cost accountant.

David E. Burt


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The Ass Backward Award

Times read: 899

01/08/08

By Dave Burt, CPA - I’m trying to persuade my 18 year old daughter to become an accountant. She’s in her first year of college and I’m trying to convince her that accounting is a rock solid profession with plenty of growth opportunity, good pay and a good field for women. She wanted to know how many accountants are women and do they make the same money as everyone else? What would happen if I got married and wanted a baby? Would that be okay? Her questions gave me pause to think and persuaded me to look into just where the accounting profession was headed.
I didn’t get far when I was hit with the fact that more than 55% of accounting students are women. (1) Wow. In my college days in the late ‘70’s we were lucky if we had 3 or 4 women in an accounting class! What a change. If estimates are correct, by 2014, the AICPA will lose to retirement, about 250,000 members (75% of its current mostly male membership)(2) and could gain 145,000 women if every alumna joins.(3)
Could that change the face of the accounting profession? Well, I’ve managed male staff accountants and I’ve managed female staff accountants and while they are technically comparable, women often bring with then different perspectives, different priorities. The following is an example: In the mid ‘80's I had an office that was next door to the financial reporting department. They had five staff accountants, all males. They also had a department award called: The Ass Backward Award---only it was written backwards. At the top of the 18” award was a gold plastic molded rear half of a mule (the ass) on two legs. Any staff accountant that made an entry backwards would be presented with the award. You were required to let it resided on the top of your cubicle for all (including those passing in the hall) to witness. Of course, boys being boys, each recipient would get a good ribbing at the mock award ceremony. For the first year or two, no one complained, not until we hired our first female staff accountant. She was a little Irish spit fire right out of college and a very good student. For some reason she was not hired by one of the big public accounting firms. Maybe not the image they wanted at the time.
After she went through a close or two she made a journal entry backwards and was presented with the award. As is the custom, it would stay with the current “winner” until someone else was awarded the honor. Well, for some reason, she couldn’t get the hang of the entries and it sat there month after month until she could stand it no longer. One morning, maybe after being ribbed one to many times, red faced, she stormed into the department manager’s office, then, apparently not getting enough sympathy, stormed down to the controller’s office. Within a short time, the award was permanently retired.
While no man worth his salt (is that saying making sense anymore?) would have complained, I think everyone was secretly glad. In the end, our new hire change the department dynamics. She moved the roughhousing outside. It was better. I think more work got done right.

(1) The Supply of Accounting Graduates and the Demand for Public Accounting Recruits---AICPA 2005

(2) AICPA Annual Report 2005-2006

(3) U.S. Bureau of Labor Statistics


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Will Globalization Gobble Up GAAP?

Times read: 577

12/13/07

By Dave Burt, CPA - Recently I read a Journal of Accountancy (July 2007) Q&A with Sir David Tweedie, the Chairman of the privately funded International Accounting Standards Board (IASB) headquartered in London, England. “The IASB is committed to developing, in the public interest, a single set of high quality understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements.”(CPE Direct July-September 2007) According to the readings, the IASB and FASB are working together on numerous short term and long-term “convergence” projects with the goals of “pull[ing] the principles into line because the standards were basically OK, and the other set where we [IASB & FASB] both had outdated standards, which we would replace by writing new ones together.” By 2012, over 150 countries will have recognized IASB’s International Financial Reporting Standards. And by 2011-12, FASB and IASB will be “pretty much the same.” Their “GAAP” is growing in acceptance in the global financial market (GFM) and, without much effort; I can picture it becoming the international financial reporting benchmark by 2015. And you say, silly boy, why do you say that? Reason: the IASB intends on “protecting the brand” against nationalizing. Example: they forced Australia to remove their national reference from Australian International Financial Reporting Standards. The result will be that IFRS will remain pure, locally untouched and globally accepted. In the future, either you’re IASB “certified” or your not. While FASB will always have a place at the table, it will be a much bigger table with perhaps Sir Tweedie standing up carving the turkey.

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Who me? A Malcontent?

Times read: 964

12/04/07

By Dave Burt, CPA - I’m not sure I get it. Does anyone know what happened to the workplace nowadays? I just don’t remember feeling I had any real bond with any of my employers. Am I just messed up? My first job out of college was at regional CPA firm. One day a senior partner said, with a voice that carried across the whole department, “Burt, you’re going to be a lousy accountant.” But then again, he had squat in billable hours and rarely brought in new clients. The other partners finally had enough of him three years later and dissolved the partnership.
I can’t really think, with warmth, of any one past employer. True, some bosses were better than others, some offices nicer, and some co-workers smarter, but all in all, no warm fuzzy feelings.
Are you supposed to, or can you afford to, have any attachment? After all, isn’t it true that, generally, the only way to get a real pay increase is to move after two or three years? And what about at-will employment? Who do you think started that? Employees? Not likely. And what about arbitration clauses that many employers require employees to sign? Are they trying to insulate themselves from the impact of legitimate charges of workplace discrimination?

What do you think about your experience as an employee? Or, as an employer? Am I just screwed up? A malcontent?


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Got a Problem? An Ethical One?

Times read: 1090

11/05/07

By Dave Burt, CPA - Recently, we received several questions from readers who wrote in about ethical issues (See: Co-Worker Ethics, 10/12/07; Employee Perks, 10/26/07). One reader had a problem with a co-worker’s reported mis-behavior and one was generally disturbed with what he saw in the news. Their plea: what do they do? I also have a story. Once as a division controller, I fell out of grace with corporate because of large increases I proposed making to our division’s reserves for bad debt and inventory obsolescent. There was no mistaking it. One day I was lauded by the corporate controller for being a go-getter and the next I was called on the carpet by our general manager for some vague ineptitude. The only incident between these events was my proposed entries, which, in the end, I made. While I no longer work there, I still have my integrity. Something one should never leave at a prior employer.

Do you agree with me? Where did I go wrong? Have you a similar experience?


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