A Counting School - Hardcore Chartered Accountancy

Trainwreck of Economic Logic

Study the logic in the following exchange from this doctor's blog:

Several years ago a wise man said something to me that really impacted my life. He was a Pharma drug rep, but prior to that, he was an accountant for a financial service company. One day, during his old career, he had an epiphany of sorts when he was conversing with an investment banker. The accountant lamented to the banker, "How come you make so many times what I make?" The banker responded, off handedly, "Because I make money and you cost money."

"Because I make money and you cost money." Wow!

Several weeks later, this accountant left his company and went into sales so he could "make money."

He told me that story over dinner one night and I had epiphany of my own. There are 2 types of people in the world: those who make money and those who cost money. People that make money will always be worth more than those who cost money. Most of us fall into the cost money category. Think about it. The dichotomy really has truth to it. Movie stars, investment bankers, top professional athletes, even top doctors and lawyers, all validate their incomes because they produce wealth for others as well. They make money. Nurses, medical assistance, accountants, teachers, police officers, fire-fighters, in fact most of the rest of us, are in more of a support role and don't really bring in the bacon. Not to say that our jobs are not important. They are. It is just that we cost money, rather than make it.

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Michael Rack, MD said...

Rian, some physicians create money, and some cost money. Many proceduralists (eg invasive cardiologists) create large sums of money both for themselves and the hospital where they do the procedure. Specialists tend to create money, while primary care doctors tend to cost money. This is one reason why specialists make more money than primary care docs.

 

Now is your inner economist nodding her head sagely at the above wisdom, or recoiling and wretching in horror at the one-dimensional take on consumption, investment and economics in general?

I'm not going to Fisk the posting, but I'll just say this: if your accountant is costing you more money than she is earning, saving, or generating, then either you have a rubbish accountant or you have difficulty tracking your costs and benefits. Of course, sometimes the latter is caused by the former, but that's another story entirely.

Moving out?

Some young man - for all I know, he could even work in the same building as me - writes about his personal finances, and considers the Toronto real estate situation.

He identifies two groups of buyers, young urban professional types, and older boomers who want a maintenance-free lifestyle. Well, there's another group -  foreign (and domestic) investors who then rent out the pads. And I glare angrily at them for keeping up demand on the market, which keeps prices from slumping in the face of the construction boom gripping the city.

Like me, he doesn't like the prices much, nor the condo fees - bleh. And apparently taxes on units are going up super-high, which is only good if you're not living there - at least all those rich young folks and investors give the city something back.

You'd think all this construction would slacken off prices, but no. That ECO100 lesson I'll always remember is the one where our professor point out that although condos may appreciate in value, you have to remember one simple fact: the supply is relatively flexible. You can squash an old building or dig up a parking lot and build another tower.

Houses, on the other hand, have an essentially fixed supply, unless you fill in the lake or run off to 905 suburbia land, which defeats the purpose of our exercise - finding a place to live in Toronto.

So since the supply of houses is hardly going to change, but demand will continue to rise in cities people want to live in, look for Toronto house prices to continue to climb towards the insane levels already seen in many European and American cities, barring some kind of crazy apocalypse, but then, real estate values will be the least of your worries.

I am a fixer

I solve problems.

I always was aware of this, but the Evil HR Lady identified this role as some sort of archetype.

It's fun to find that some kind of grandiose term applies to you. Like how you see yourself while reading about the 'types' of people in The Tipping Point, and realizing your friends fit some of those roles.

I'm not the only fixer I know, of course, which must be a pre-requisite for being in such a position. How else can you help people with your limited personal skillset unless you know many more people with access to ever greater skillsets?

Having said that, I must say thank you to friends who helped me with various problems recently and everyone else who helps out whenever.

If you're wondering if you're such a person, one telltale sign is to hear one of your friends say, "how do you know this?" with some mixture of shock and admiration.

If you want to begin, figure out something that always confuses people and play with it until you have a good understanding. Computers and I get along that way. I use them until they break, then I figure out how to fix them. Eventually.

If that sounds too daunting, and it often is, another fun option is to just read up on any policies and procedures at work. One tiny part of my job actually involves looking at how different companies prepare those sorts of reports. I look at my own company's policies, though, to figure out what kind of bonus perks we're eligible for. And then I incessantly remind my friends to take advantage of those perks.

After all, if something's valuable and you're eligible for it, someone must think you deserve it for some reason. So go for it.

This philosophy may have actually destroyed the Soviet Union, or it could have been Catholicism.

Or some strong combination of both. Possibly Polish 'National Spirit.' There must be a connection.

So how much do you audit kids get paid, anyway?

Francine is continuing her probing look into how the profession operates by taking a look at starting pay.

Before we dive headlong into that issue, some personal observations. If you study long and hard, you certainly want to be fairly compensated.

Having said that, is studying business really hard? Not really. Lots of the clever people I know burdened themselves with extra course loads or extracurriculars to add some real challenge to their university program. I mean, we're not studying quantum mechanics, or trying to score high marks in chemistry or biology. We're learning about inventory cycles, double entry bookkeeping and how to both fix and break these sorts of things - yay audit.

But, there's a high demand for people with a schooling in basic business acumen, which inflates salaries - both of the Commerce grads, and of their instructors.

High pay for instructors in Management Faculties translates into higher tuition. If your friends are paying yearly tuition of, say, five grand for an Arts degree, watch the Business degree cost double. Or a gut-wrenchingly higher amount, if you're doing a glorified Bachelor of Commerce - i.e., an MBA.

Unless you saved up lots of money in high school, or have parents who saved up lots of money for you, you're probably going to have a big fat pile of debt to pay off when you graduate. This isn't news to anyone paying attention to the economics of the current educational climate in most of North America. But I've restated it as an explanation as to why those salaries are justifiable. Sure, you're not doing hard back-breaking work, but you've got some heavy bills to pay off.

The preceding argument isn't especially unique - students in other fields study long and hard and can incur debts as well. You could argue that although they enjoy lower tuition fees, they also expect lower starting salaries, so everyone is equally disadvantaged.

In fact, the kids in accounting and similar fields have a big advantage - although their starting pay is in many cases only marginally better than that of the hardcore science and liberal arts crowd - within 2 years they start getting bumped up to the point that unless they've started a young family, they should be sitting pretty.

That last observation drags me back to Francine's original issue - what's up with the starting pay of audit firm staff? Is there collusion at work? It's certainly a spicy accusation, but as cynical as you have to be to believe that it's true, I feel that I'm even more cynical - which makes me not believe it. You see, if you want to effectively conspire, you need some malice, and even more competence. The malice-angle is obvious - you want to shaft someone by ganging up on them. The optimist in me doesn't believe that we're surrounded by that much malice. And if you're cynic, you're scoff at my starry-eyed youthful optimism.

That's where my even-greater cynicism comes into trump your hypothetical jaded view of the world: I say that you need a lot of competence to stick to a cartel agreement. You can't allow information to leak, and you need to discipline anyone who tries to break the cartel's rules. Look how well that works for OPEC and oil prices. Or consider the countless mob movies where someone's out to do a deal behind the boss' back. I think there are sufficient examples in both fiction and reality to back up my view.

Certainly, like in the scenario of Steinbeck's classic book The Pearl, it may be possible to find places where that phenomenon known as "market failure" occurs. And I suppose she's looking for examples of having occurred. I can't say I've come across such examples in my own experience of the job market I'm personally in, but perhaps she'll find more leads in a place like Green Dot Life, which is chock full of interesting conversations between one firm's staff - and presumably other visitors hanging out and getting a feel for the 'secret' side of Big Four culture.

On the level of Ontario, I will offer a couple of observations, though, as parting thoughts on this topic:

1. Demand for staff is still high, because of the industry's traditionally high turnover model.
2. The number of applicants is also high - but there's nevertheless competition for the 'top stars'.
3. Once you're in, if you're truly competent you're set. First year pay is known to all in school to be relatively low, but you get between an educational boost worth at least 10 to 30% of your salary in terms of tutoring and other support.
4. Once you pass your exams, watch the funds devoted to your education be converted directly into salary increases.
5. After the first few years, you're become a CA or a CPA and in addition to the in-house raises, you're also going to hear from head hunters offering jobs in industry, which translate into another salary boost if you choose to 'jump ship'.

Clearly the trick is to make yourself stand out in the pool of applicants and get in a firm and survive the first couple of years, where you're doing some of the more tedious work, desperately trying to pass exams, and not getting paid as much the clerks and analysts you're auditing.

Of course, once you've managed to survive the first hurdles, you'll find your pay beating those of the clerks who've been slaving away at the same job for years - while you've only been in the 'real' work force for two or three.

As much as it's easy to complain about the trials of first year, I find many people will not speak up about it because of that sobering fact about the expected outcome down the road. I'd say it's more out of silent gratitude rather not wanting to rock the boat, but everyone has their own reasons. Or at least one of a set of perhaps a half dozen popular choices, anyway.

Update: if you're looking for more on actual pay figures, check out Neil's post on hedge funds poaching of accountants and the accompanying pay hikes that sweeten the deal.

America has devolved into a crazy police state

Courtesy Videosift, footage of a Dubya visit in Portland.

There's a lot of anger in the US. The media seems to automatically assume anyone protesting something is in the wrong, it seems, ignoring the disproportionate police response.

Be advised, quite a bit of NSFW language.

In case you're wondering, crazy homophobes attack the anti-Bush crowd, and the media spins it into an anti-Bush riot, even though the anti-Bush crowd was asking the violent homophobes to leave.

And that's why everyone chanted "Corporate media lies."

Do you want to write now with a 50% chance of success, or wait until next year and have a better chance?

Neil has a fun little conversation going on the topic of the 2007 UFE.

The discussion branched off into the question of why Ontario did worse than the national average and what could be done to improve matters. Could forcing candidates into a 2-year program improve matters?

 Paul says no, "Low provincial/regional pass rates are always hard to swallow and can undoubtedly be improved by increasing the amount of screening and the length of the education period prior to allowing a UFE candidate to write for the first time.

However, I question whether a higher UFE pass rate would make the program more attractive to potential entrants. After all, what’s the benefit of making it easier to get THROUGH the UFE if it makes it harder to get TO the UFE in the first place?"

Assuming pass rates of 80, 80 and 75% on the three exams, the average first year writer has a 48% chance of passing, and Paul says that this is still better than the 0% chance you have of "passing" in your first year if you have to soldier through a two year program before you get your shot.

Are programs that force you to work in a CA firm for a full two years before you can attempt to write the UFE taking a superior approach? I suppose it boils down to how much certainty you want that you'll pass, compared to how badly you want to dive in the pool and hope for a sufficiently competent splash. Note the subtle UFE pun/joke in that last sentence. Awesome.

Anyway, I'm a firm believer in the "let me at it NOW" philosophy, in no small way because it worked for me.

The question that Paul poses in the second part of his comment is which approach encourages or dissuades people from even trying.

Speaking from personal experience, I shuddered at the thought of having to hurdle across 3 exams. In the end, the simple fact that I had taken the time to get ALL the CA pre-req's (including Consolidations, which was like credit 22 out of 20 needed for me, which I therefore didn't try very hard at) was what kicked me into gear. Well, that and the joy and prestige of being a CA.

But when you're looking at the obstacle course, what I find matters isn't what left, but the fact that you've already been through so much, it feels like a waste NOT to finish what you started.

My perspective argues that the types of hurdles and whether or not they dissuade you are functionally irrelevant. I guess if you really care one way or another, you can always move to another province where the entry rules are more to your liking. I wouldn't surprise to hear that there are some people who did just that.

One factor that complicates all this is the fact that you only get about four shots at the UFE before you can't try anymore. (I think it's 4 attempts - can someone please confirm if it's 4 or actually 5?)

The question "are you feeling lucky?" never felt more apt.

While you ponder that, I'm going to have to ask myself what on Earth I'm going to do with the 525 photos I took at my firm's UFE party. Well, delete the weaker pictures and duplicates for starters. Enjoy the top photo, from last year's collection.

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There we go, down to 523 already. Oh, and thank goodness. My mentee's photos came out successfully. Lighting on a sunny day can be surprisingly tricky if you're not careful. It gives me renewed appreciation for the work of true pros.

Holding steady: November Spam Count is 2481

Had November been a 31 day month, the total could've been equal or higher. So nothing exciting to report today.

Differences in USD and CAD prices, and healthcare again

Over at one of the discussion forums I visit there was a heated debate about the reason for the higher prices of goods in Canada, despite the fact that the Canadian dollar has hit parity with that of the Americans. The debate spilled over into other various fun topics, including taxes and healthcare.

One person commented that taxes have little to do with price differences, "The fact that anyone thinks that stuff like health care and taxes have anything to do with price difference, they deff need to go back to school. You don't add taxes to the price of a car until after you buy it. So this argument about health care and taxes is totally irrelevant to this thread."

I decided to respond to that comment, and to then turn my response into a full-blown post. If this was only about the exchange rate difference, that comment would be correct.

If you take this debate to be more all-encompassing, the cost of doing business has to be considered as well.

Remember that you're not only dealing with sales taxes: income taxes affect businesses too - their overhead/profit margin depends on how much they pay in taxes and health insurance for their employees.

In theory (if everything was working 'perfectly'), it wouldn't matter whether you have government-provided health care as you do in Canada, or the "employer/employee" pays model the US uses. This theory would rely on a world where the cost of administering health care is identical in either system, so the cost to a business would be identical in both countries.

In reality, this is of course hardly the case. Not only is health care just one of many costs, there are many different ways of delivering health care, which can place or greater and lesser burdens on employers.

One of the big arguments from the movie Sicko and other pundits is that the US system is dysfunctional because there is a plethora of private insurance companies who spend too much of their money on administration, and not enough on patient care.

Supporters of the US system counter that governments are inherently wasteful, so having a single government-administered system will be more wasteful than the deadweight loss incurred by all the insurance companies in the USA. The stats I've heard seem to destroy the US system's supporters point, but that's as far as feel like taking this today.