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MBA Mondays: Financial audits

On Mondays, sometimes I like to discuss business topics when I have the chance.

MBA Mondays is an idea I got from Fred Wilson.  The issue this Monday is financial audits. I have been thinking about audits recently, since we spend a lot of time going through them for deals that we work on.

See below for a few short tidbits on a financial audit.

What? A financial audit is an audit of a financial statement.  An audit means the verification of the accuracy (e.g. truth) and reasonableness of the financial statements.  The audits usually (but not always) result in an opinion band the opinion is intended to assure various parties that the financial statements are fair and that they give a fair view of the company based upon the accounting standards.

Are they a guarantee? No. An audit is intended to provide reasonable assurance, but it does not give a guarantee.

Who? Audits are usually done by audit firms. These are firms with licensed accountants who are experts in the field. They are almost always independent third parties.

Why? An audit (and the opinion) is intended to assure various parties that the financial statements are true and reasonable.  More specifically, it is intended to ensure that the company is not doing anything that is materially misleading its filings. This is why it is done by an independent third party.

Why does it matter?  These can be important in transactional work. In any sort of transaction, one company usually needs to be valued, because it is being sold or acquired, or its stock is being sold or acquired.  In order to value a company, a buyer and seller should understand things like assets and liabilities, cash and cash equivalents, property and equipment, and the short and long term debt of the company, among other things. Financial statements presented by the company have these numbers, thus the financial audit are important to help prove that the numbers the company gave are reasonably correct.

Layman’s Terms:  Think about it like your tax return.  You could purposefully put misleading information in to save money ever year. Moreover, even if you try to get it right, you may accidentally still get things wrong or mislead the readers. In many cases, the government will do an audit, to make sure what you submitted is correct.  That’s why tax firms will often audit the forms first, to make sure everything passes the test of reasonableness.

Keep in mind that this is the short version. The audits can become quite a bit more complicated than this.

Tags: Finance, MBA

Good Article: College Majors of Top CEOs

For many people, choosing a college major is one of the most feared parts of undergrad.  Some students fear the prospects of enraging their parents. Others fear sacrificing their future job prospects and salary potential upon graduation. And another group, they fear losing the one chance to do something they love.  Conventional wisdom says that students who major in finance and economics are best positioned to land top paying jobs out of school, and as a result, students have long flocked to these majors. On the other hand, one of my readers sent me an article yesterday, that suggests that if you want to become CEO – or any top position in your target industry – you may not want to rush into choosing a major. In fact, you may even want to study something different. His email was a response to my recent post about the the Path to become CEO.

As a follow-up to my post yesterday – where I wrote a post that responded to a careers question about college major – one of my readers sent along a great article about the college majors of CEOs.The premise of the article is that there are a number of top CEOs that did not study business in undergrad. Instead these business leaders and entrepreneurial tycoons took more unconventional academics paths. They studied philosophy, medicine, psychology, medieval studies, and English. The article also suggests that philosophy might just give them the exact skill set they needed in order to lead at these big companies.

The article is titled Accidental Moguls: College Majors of Top CEOs, and I put a short blurb on the article below.  You can also click here to read the article now.

Thanks everyone for continuing to read my website.  And a special thanks to those of you who send in positive and useful feedback, such as recommendations for posts. Please keep reading.  And be well !

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TITLE: Accidental Moguls: College Majors of Top CEOs
AUTHOR: Business Week (Bloomberg) – Lavelle Louis

BLURB: See below for article blurb:
“Not every corporate chieftain studies business in college. Many of them major in history, psychology, or even philosophy. It may be one reason why they succeed.

In this, the graduation season, the thoughts of college students naturally turn to the four years behind them, the lifetime ahead of them, and the connections between the two. For business students, especially those with the biggest of corporate ambitions, this is a particularly introspective time. Role models seem to be everywhere—whether it’s the rags-to-riches story, the brilliant entrepreneur, or the middle manager turned MBA turned corporate leader.

It will come as absolutely no surprise to anyone that a lot of big-company chief executive officers studied business in college. After all … (click here to continue)

Tags: Careers, Finance

Goldman Sach Presentation

A couple of week ago here at the law school, the private wealth management team from Goldman Sachs came out to give a presentation. Contrary to Goldman’s usual pit stop down at Kellogg, this time they decided to come and recruit specifically here at Northwestern Law. It’s pretty odd that they were here on campus at the law school, since companies like Goldman spend the majority of their time on the business school campuses.

But the Goldman buzz definitely got around campus quickly when the news first came out. A lot of people were talking about the session, and multiple emails went out to our listserve in the last days before the event. The session took place at lunch on a Thursday. Minutes before the session started, the room quickly filled up. It’s no surprise that a large number of the JD-MBAs were in attendance, many of them from my year. Events like these are usually much more attended earlier in the year before classes get hectic and midterms begin.

A couple of senior Goldman advisors stood up in front of the room, introduced themselves, and then gave a mini presentation. All of them were lawyers and a couple had JD-MBAs. It was pretty obvious that the presentation was canned, and the presenters seemed more interested in giving a small pitch and answering question than making a formal presentation. Goldman’s pitch was that both law students and experienced lawyers are very well-prepared to enter the private wealth management field, given their strong communication, negotiation, and client management skills.

I don’t disagree with the pitch. But I also think there’s a bit more to it. In my personal opinion, I think Goldman was also trying to cast a wider net for the private wealth recruiting team. For one, in many business schools private wealth often takes a back seat to investment banking, which has long had the lure, appeal and prestige to attract MBA students. This has long been the case, and I don’t think anything has changed even in this economy. And second, I think Goldman is absolutely correct. In the long run, lawyers do make really good private wealth advisors. This is because they have both the soft client skills to do well and in the long run they bring clients with them to make Goldman a lot of money.

Overall the session went pretty well. Despite a seemingly canned presentation, the advisors gave a lot of information, answered a lot of questions, and were available to chat after the session. I have a JD-MBA friend here at Northwestern who is in his final year in the program now. At the time of the session he was preparing for a Goldman interview but hadn’t had it yet, so he made a point to chat with the advisers after the presentation. Turns out that just earlier this week, he finally received and accepted his offer. This is proof that sometimes going to all of these info sessions can pay off during recruiting time, especially if you target the right sessions.

In my opinion, it’s definitely nice to get an offer at Goldman this year no matter which division you work in. Kudos to one of my JD-MBA classmates for reeling it in. Law school recruiting for first year students has barely started here at Northwestern for first years. On 11/1 Northwestern Law was permitted to meet with students to advise us on our career options. In December, we’ll finally be able to start sending out applications and going through the formal recruiting process. Should be an interesting couple of weeks as things start to progress. Check back for more recruiting updates along the way.

Tags: Finance, Investment Banking, Law School, Recruiting

Kellogg and HBS

For everyone who knows anything about business school reputations, you know that Kellogg and Harvard Business School (HBS) have something in common–they’re often seen to be the “soft skills” schools. This has both positive and negative connotations. On the positive side, both schools are praised for teaching interpersonal skills, teamwork, and leadership ability. Conversely, both schools are also considered programs where you don’t need to take any real finance courses or have quantitative skills to get through, despite the number of folks who actually do go into the finance industry.

Recently at a Bain recruiting event I went to, one of the firm’s senior managers made a pretty funny comment during a panel. He was facilitating a session where we were chatting about how to get into the consulting industry, and he asked, “So how many of you out there are going to HBS or Kellogg?” A good number us put our hands up. Then he told us, “My best advice to you is, please, try to take a lot of finance classes. Because you won’t get them otherwise” Everyone in the room chuckled.

Admittedly he was joking with us a bit, but he was also definitely serious. While he told us that we didn’t necessarily need the classes to land a consulting job, he also said that the classes would be the most beneficial courses in the long run. He told us-—and it’s something we’ve all heard before—-that finance is the language of business. And if we ever want to move to the top floor, then we’d better understand every aspect of finance. He then talked a bit about the CEOs close relationship with the CFO and compared it to the CEOs relationship and trust level with other top executives. He seemed to have a pretty good point.

Despite a pretty persuasive argument, I also think it’s fair to note that Bain is pretty finance-oriented compared to some of the other major firms, so his opinion was probably a bit biased. Bain has the biggest private equity arm (by far) of the consulting firms, and it also has things such as the Bain Capital investment spin-off and a turnarounds/restructuring group, both which operate based on financial analytics.

That said, I still think it’s solid advice. While I don’t consider myself to be a finance person and am not going to b-school specifically for that reason, I do think someone with his experience has really valuable insight, and I’ll probably pick up some extra finance courses more than I might otherwise have taken. Kellogg’s most famous class is Entrepreneurial Finance, which I will definitely take.

The comment also shows that despite the strong brand of both these schools and the caliber of the students, reputation will play a part in how we are perceived in the workforce, good and bad. And conversely, despite the fact that dozens of other schools teach the soft skills very well (too many to name), those school don’t get the reputation for it that Kellogg and HBS get.

Personally, I really value the “soft skills,” so as an applicant I really liked the brands of both HBS and Kellogg. I am excited to be headed to Kellogg and the JD-MBA program this fall.

Tags: Bain, Consulting, Finance, HBS, Kellogg