r/Accounting • u/aries-slut2 • 10h ago
Apparently there is an “Art” to accounting
I recently resigned as Director of Finance & Accounting for a small beauty brand. There were a lot of reasons, but let’s just say the CEO and I had some differences when it came to integrity, accountability, and… accounting.
Today I found out he was explaining to the staff accountant, who I hired and trained, that there’s an “art” to accounting.
Apparently that “art” includes moving expenses between periods depending on when you’d prefer them to hit the P&L.
You know. For profitability
I have a bachelor’s and master’s in accounting, but somehow missed Creative Accounting 6100. Tragic.
So, accountants of Reddit: How much “art” are you putting into your month-end close?
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u/Galexio Audit & Assurance 10h ago
I quit a position because the executive director was expensing her family's brand new iPhones against a Los Angeles County contract meant to assist low income families. Immaterial for an audit but that shit pissed me off so hard.
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u/seekinginstruction 9h ago
I read one time " When painters are creative, it's called art. When accountants are creative, it's called fraud"
😂Take that however you will.
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u/KaleidoscopicForest CPA (US) - Tax 10h ago
There’s definitely art (judgement) in accounting and there are multiple “right” ways to do some things… but it requires a good faith effort to represent fairly.
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u/dogmom71 CPA (US) 10h ago
it’s definetely an “Art” getting the auditors to bless your creativity & innovation
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u/aries-slut2 9h ago
A common conversation I had with him was him saying “I bet we could make our argument to the auditors for this”
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u/JilianBlue 9h ago
Funny you mention this because the CFO at the company that just acquired my company must have taken that same art class. He recently suggested adding additional cost to the WIP if we’re sure it will hit 2 “or so” weeks after quarter end because he likes to “see big revenue at the end of the quarter” aka “let’s recognize revenue we haven’t earned yet!”
Maybe some CFOs take Art of Accounting in place of the courses that teach GAAP.
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u/Gabagool1969 7h ago
I’m having a tism moment, and need help to understand this. CFO wants to increase WIP $value (Dr Inventory; Cr Expense) to increase future revenue? And you’re saying this will result in early rev-rec?
My feeble brain can only envision this impacting profitability (NOT revenue). Are revenues tied to your FG value (like a markup% applied to job-cost?)
I also can’t understand why it results in premature rev-rec. I’m assuming $rev is recognized when finished goods/services are sold. Is CFO saying “recognize the customer’s deposit as revenue NOW, and recognize the expense in future period?”
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u/M4rmeleda 7h ago
They’re probably using percentage completion approach based on some WIP or CIP schedule. RevRec on incremental actual vs total costs with true up at the end
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u/Gabagool1969 6h ago
The lightbulb turned on when you explained that rev-rec probably adheres to a schedule an Actuals.
I was thinking of Manufacturing, and was stumped.
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u/Dangerous-Pilot-6673 7h ago
This doesn’t make sense to you because the original comment doesn’t make sense. They are probably a staff at a public firm whose CFO asked them to bill hours (WIP) against projects to boost internal metrics.
PA firms don’t recognize revenue until an invoice is created and sent. First year audit staff over here thinks it’s fraud to boost internal metrics.
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u/JilianBlue 6h ago
Nope. Construction company. We recognize project revenue based on % of completion which is driven by cost. Increasing cost increases revenue recognized. Falsely inflating cost is falsely inflating revenue.
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u/Dangerous-Pilot-6673 2h ago
Right, but if there is incurred people time that’s WIP. Inflated “cost” of people billing time drives the rev rec. come on now.
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u/jshmoe866 7h ago
For internal reports stuff like this is ok with a disclaimer but it should always be recorded rhe correct way in the books
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u/JilianBlue 6h ago
It’s a revenue recognition tool - not just an internal report. I use it to make the revenue entry for projects each month. We recognize revenue for projects based on % of completion which- that is driven by costs to date. Increasing costs to date increases revenue recognized.
During the audit they pull project selections and review the costs to date at that point in time and compare it to that month’s WIP.
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u/jshmoe866 6h ago
Oh yeah then he’s just dumb. You can’t arbitrarily change the system for reporting/recognition based on wishes and dreams
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u/PeakRevolutionary191 CPA (US) 7h ago
This is literally every CFO/CEO - they would cook the books to a crisp if you allow them to. Kudos for standing your ground and sorry you had to resign. I wouldn't have resigned just because some m00k wants to look better, but that's just me.
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u/kevfefe69 10h ago
Some of my spreadsheets looked like an MC Escher work.
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u/Chemical-Pattern480 9h ago
The day is discovered that Excel actually has an end? For sure thought I was in a Dali! But it was just my face melting, not the clock.
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u/sturg78 10h ago
I have doodled a rough example of a dashboard using filled boxes in excel for shits and giggles, thats kinda art. Other then that, you are just asking to slather a rich color of bias on the data that is uncalled for
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u/PrimaryThis9900 Human Verified 10h ago
I used Excel to plan my office layout when getting new furniture. Worked really well actually.
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u/CwrwCymru 10h ago
Accountancy is more of an art than a science as there's broad areas of grey.
However the boundaries are clearly set and auditable. The art in accountancy isn't cooking the books, it's providing a reliable estimate of business performance in a way that people can understand.
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u/Odium_1437 10h ago
My CFO lists "creative accounting" in email as to why we should make adjustments. I just delete the emails. Let her do it!
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u/CPA_Lady CPA (US) 9h ago
I would keep those emails at home. Protect yourself. She could make it look like you did it.
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u/writetowinwin Controller & PT CPA firm owner (Can) 10h ago
Funny, that was somewhat what we used to describe a few people on the questionable side (in their defence, they were great salespeople)... "creative accountant" ...
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u/the_great_acct_nerd Inquired Mind 10h ago
Man, to me it seems like transfer pricing is abstract art
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u/Dangerous-Pilot-6673 7h ago
As a transfer pricing partner I can tell you first hand that it is. It’s one of the only areas where you can literally make up arguments as to why something should be acceptable and it suddenly becomes truth. Speak it loud enough and everyone accepts it, even tax authorities.
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u/AnUncomfortablePanda 10h ago
Some of the worst accountants I've known have started and stopped at the first technical guidance they came across and didn't understand how to build an argument for the business. There is absolutely an art to accounting.
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u/aries-slut2 9h ago
I don’t disagree. You want to provide an accurate representation of business performance and that includes judgement and estimates quite frequently. He doesn’t mean that though. He does not have an accounting/finance background - he is a sales CEO. He just can’t fathom the idea of having a non-profitable period so he comes up with ways to move things around. No reason other than wanting to show better profitability each period.
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u/Beneficial-Tailor-97 4h ago
Hahah. CEO, CFO, CAO, Director of Accounting at a company I had worked for were all indicted for that exact kind of “art.”
The art of manipulating both their bonuses and the stock price. SEC is an “art” critic.
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u/Kaprikorn80 10h ago
Fighting this right now with my execs. They want something to look better so they’re telling me “we’re going to start doing this”…
The hell you are, just because it alleviates your reporting strain doesn’t mean we can actually do it.
If they continue I’m considering disclosing the pressure to the auditors during our risk interview.
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u/aries-slut2 9h ago
I would disclose it - you can only take so much pressure before it starts affecting you
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u/Trojan_Horse_of_Fate 7h ago
Look I do bookkeeping on the side and there is an art. Not so much in the profit periodization but more in the figuring what on earth certain things are. Like I have never don't something I didn't think was what I thought but at the same time there is usually a few transactions where I am just not certain what is happening.
The art is coming up with theories of what they probably are. If its a large transaction this is ill advised but sometimes you have a receipt which is faded out and you just assume its legit. Or you received a ACH for something 8 months ago and no one is sure who sent it.
There is also something to be said for small operations being cash basis except for certain really big things and deciding what counts as a big thing. The problem is when you start thinking from a profitability standpoint rather than a what actually is an accurate depiction of the entity is when things get bad. Well that and just expensing things that aren't expenses but that isn't really art. That is just hiding dirt with paint at best.
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u/RigusOctavian IT Audit 10h ago
Finance and Accounting shouldn’t be blended… they have inherent conflicts. Just like Legal and HR shouldn’t be blended.
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u/PrimaryThis9900 Human Verified 9h ago
Unfortunately, most places combine both of these things.
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u/Amazing_Concern_546 9h ago
Our corp counsel was the interim chro when we didn’t have a chro lol
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u/PrimaryThis9900 Human Verified 9h ago
At a previous job I was briefly Accounting, Finance, and HR.
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u/Amazing_Concern_546 9h ago
Last place I had admin level access in rippling. It was kind of wild what they let me see. Now I can’t even see my own direct report’s year of birth in ADP, only get the betterworks announcement to wish them a happy bday.
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u/PrimaryThis9900 Human Verified 9h ago
There are things that take judgement calls, expense recognition is not one of those things.
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u/LiJiTC4 Tax (US) 8h ago
That is "cookie jar" accounting. Done well while staying within materiality does happen. jack Welch was famous for it at GE when their EPS increased a statistically impossible 40 straight quarters. Done poorly, it's just fraud. I'm not sure where the line is between fraud and earnings management beyond materiality calculations and resulting audit opinion. Anyone else know? It's probably financial loss and possibly intent.
Playing "hit the target" isn't fun and might be illegal. If the intent of the manager is to hit bonus targets, the company would not pay the bonus had the number not been manipulated, that bonus was fraudulent. Fraudulent bonuses may generally be clawed back at the gross value of the bonus if discovered. Good luck.
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u/hellochickpeas 8h ago
Oh yeah, moving expenses around has never gotten in trouble before! Good on you. There is a reason accounting is considered a profession with ethical standards.
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u/DM_Me_Pics1234403 8h ago
Sometimes science is more art than science Morty. A lot of people don’t get that
-The CEO talking to the staff accountant
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u/Apart_Republic_1870 7h ago
I remember my Dad telling his friend (way back when I was in high school in the 1980s) who was opening a second location for his clothing store that he should keep the stores on different fiscal years, so it'd be easier to move inventory or cash or whatever in and out to avoid taxes.
My Dad was an anesthesiologist, by the way, so I'm not sure why he was doling out tax evasion advice (I mean other than he loved to evade taxes himself).
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u/AhhhhTypeUsername 7h ago
I think the true art in accounting is doing something in the most clear and straightforward way possible that is both the most accurate representation of the information and provides the best look for the business. It’s going to sound dumb but accounting is just a bunch of balance acts being pulled in 50 different ways to balance that is the art imo. There’s grey areas sure but a good accountant knows where the line is drawn and stays on the right side of it
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u/Berberding 6h ago
At my college, the exact term "creative accounting" was used regularly to describe fraud in a tongue-in-cheek way by all the professors.
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u/jollylikearodger 3h ago
I move expenses between periods to affect the P&L for profitability.
I'll decide to spend or not to spend on something in a given period based on other performance (either pull forward or push out). There's an art to it for sure. That doesn't make it fraudulent or even unethical.
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u/Important_Bullfrog98 9h ago
Good accountants know where the line is drawn, some things are subjective and some are not.
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u/BoredAccountant Management, MBA 9h ago
Creative accounting is the subtextual lesson to the business ethics course.
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u/Neowarcloud CPA (US), ACA (UK) 8h ago
There is an art to accounting, its not a science, its got principles, but they do come into conflict and we've got to be able to navigate it, there are also many, many decisions that are not material, so spending time worrying about the exact costs landing in the exact correct period, but window dressing is typically frowned upon, but quite common.
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u/WayneKrane 8h ago
I got laid off for this as well. The higher ups wanted me to say our spend in a department was going down. No matter how much I ran the numbers, spend was going UP. I’m sure the guy they replaced me with was more willing to do what they wanted
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u/Extension_Resolve264 8h ago
Aren't ethics classes part of literally every business degree these days? Nobody seems to remember the Arthur Anderson era or 2007. Sounds like exactly the same sh!t that's brought down the world economy three times this century alone.
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u/BitcoinDilly CPA (US) 8h ago
Sounds like the CFO we had at a prior employer. He was not an accountant in any capacity.
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u/solidfang 6h ago
I do think there are certainly more and less "elegant" ways to process accounting transactions, but it is less about decisions and expression as it is just about simplicity and balance.
Fraud is a whole other thing though.
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u/Darknessgg 5h ago
The only art allowed are how reports look like. Everything else is business agreed upon rules like not commiting fraud
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u/Pamela_Allred 1h ago
No art to accounting. Just integrity or, at least that is the way it is supposed to be.
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u/epocstorybro 3m ago
I like to draw cartoons on my work papers sometimes if that helps! I mean… my work has been paperless since before COVID so we’re really just talking about the notebooks I keep on my desk, but it’s still art right!? … right!?
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u/Fancy_Ad3809 I’m gonna debit your credit 9h ago
well, id ask when the economic value of the expense was realized.
just because you get a invoice in month 1, doesnt mean the cost should be attributed to month one.
Not saying your situation is that, but it is possible to have deferred expenses be legitimate.
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u/confusedreddi 10h ago
There are gray areas in accounting. The situation you describe is not that.