A Critical Reflection on my Time at EisnerAmper

In this article, I will reflect upon my time at EisnerAmper and the knowledge I gained during the internship. I will address how the internship met, failed to meet, or exceeded each of my personal learning objectives: understanding the audit process, expanding industry knowledge, mastering audit software, and contributing to team collaboration.

Understanding the Audit Process

The internship fulfilled my goal of gaining a better understanding of the overall audit process. I learned many of the auditing concepts in the Assurance and Auditing Services course I took last semester as well as other accounting courses, but this internship allowed me to put these concepts into use and understand how they interact with each other. My courses generally referred to auditing annual financial statements. However, because my internship was during the summer, most of the audits I was assigned to were employee benefit plan audits.

Planning Stage

One of these concepts was the planning stage of the audit. I knew this to be a lengthy and essential step in the process from my class, but being a part of the process helped me understand just how thorough the planning needs to be. The task that I was repeatedly assigned was completing “Planning Document Abstracts.” These were large Excel sheets with a plethora of questions about the details of the employee benefit plan. It was similar to a questionnaire that laid the groundwork for the audit and would help guide the engagement team through the other steps of the audit as a resource to look back at. It went over different aspects of the employee benefit plan such as eligibility, distributions, contributions, the definition of compensation, the enrollment process, amendments, and other essential characteristics to understanding the plan. My task was to answer these questions by thoroughly reading the planning document, the summary plan description, the adoption agreement, and the amendments that we received from the client. Reading through these lengthy documents forced me to understand the ins and outs of employee benefit plans. I learned how they operate, the different types, and their intricate nuances.

Test of Controls

Once we had a grasp of the overview and type of employee benefit plan, another task I was consistently assigned to was the system of internal controls narrative. Similar to the planning document abstract, my task was to fill out questions that asked about the nature and structure of their internal controls. This was essential to the audit because as discussed in the audit and assurance services course, the more effective the internal controls, the less substantive testing is required. To fill out the narrative, I would use a similar workpaper from last year’s audit and gather what information I could. The workpapers did not just roll over because I was using a Postlethwaite and Netterville document to fill out an EisnerAmper that asked different questions. I would gather all the information that I could from last year’s system of internal controls narrative and whatever was left unanswered was filled out via management inquiry or other client documents. The team could use the narrative to test the controls properly, and thus, get an understanding of how much substantive testing would be required.

Substantive Testing

The substantive testing tasks generally assigned to me were eligibility tests, distribution tests, and contribution tests. These tests gave reasonable assurance that the correct employees were enrolled in the plan, the timing and amount of withdrawal were correct, and the contributions to the plan were calculated correctly and in agreement with the plan description. I will go into further detail on each substantive test in the task description section.

Conducting these tests allowed me to understand what substantive testing actually looked like. It was no longer a concept I could merely regurgitate to get a question right on a test, but something I had meticulously completed myself. It truly deepens your understanding to the point where you not only comprehend the purpose of substantive testing, but you understand the process.

Test of Details and Reporting

Unfortunately, this was the last step in the process that I had the opportunity to contribute to. I recall from my audit and assurance services course that after substantive testing was the test of details. Typically, the test of details is not required, but it can be essential for audits that could not provide reasonable assurance from the test of controls and substantive testing alone. I also remember that after the test of details, the engagement team begins to wrap up the audit. They draw conclusions from the audit evidence and issue a report. I did not get to experience this step either because my internship ended before the team began to reach the final stages of the audit. I would have enjoyed learning about the final audit report and hopefully contributing to it, but I thoroughly enjoyed the steps of the audit that I was able to experience.

 Expanding Industry Knowledge

To meet my goal of understanding my job preferences after graduation, I wanted to have a better grasp of all the services and roles large accounting firms offer. I knew the big three departments: assurance, tax, and consulting, but I had little knowledge of what all consulting entailed.

The merger became official the week before I stepped into the office for new hire orientation. This period of transition made it very difficult for the interns to receive work at the beginning of the summer because the higher-ups who would usually give the work had to learn the new firm’s methodologies before they could distribute the work to the interns. However, I was able to use this free time as an opportunity to soak in as much as possible from the different training and other learning resources that the firm offered.

Through these trainings, I was able to learn about all the different services that made up the consulting department. The service that I took a particular interest in was the business valuation practice. Postlethwaite and Netterville had been well-renowned among the region and even the nation for their valuation practice, and EisnerAmper thought it could be very helpful in boosting their consulting department. The autonomy and complexity of the valuation process sparked my interest along with P&N’s long-standing reputation in the practice. One day, I approached a valuation partner with an interest to learn more about his practice, and he was more than happy to provide me with their training and answer any questions I had. I will attempt to describe the valuation process that they taught me as it is one of the biggest takeaways from my summer.

The Business Valuation Process

The valuation process combined and expanded many of the concepts I had learned in both my accounting and finance classes. The Financial Analysis and Investment courses I took this past year taught me the different methods financial analysts use to value companies. However, the methods we used assumed the companies were publicly held companies with easily accessible information and statistics. In contrast, the purpose of business valuations is to value privately held companies whose statistics and stock prices cannot be found on Yahoo Finance or the Bloomberg terminal. These privately held companies do not have a beta, a cost of equity, or an expected return. Because of the lack of information and statistics, the process involved many different equations, procedures, and even different methods to arrive at a subjective value for the company.

In the same way, the Corporate Tax class I took this past semester proved to be very valuable in understanding valuations and put me a step ahead of the valuation interns that were also learning the process. Many of the smaller clients have tax returns instead of financial statements. Using the knowledge of 1120 tax returns that I had gained, I already understood how to convert the tax return into an income statement and a balance sheet. The income statement could be created by using the first page and schedule K of the 1120. There would be some book-tax differences but those could be reconciled by using the Schedule M-1. Preparing 1120 tax returns in my corporate tax class had already prepared me for these tasks.

The Three Approaches

There are three methods or approaches to valuing a company: the asset approach, the income approach, and the market approach. In the following paragraphs, I will describe each approach and discuss their weaknesses, strengths, and when their use is appropriate.

The asset approach is the simplest and quickest of the three. Essentially, the company’s value under this method is the fair market value of its assets net of its liabilities also known as its net asset value. If you were to simply purchase the company and immediately liquidate it, this would be the most appropriate method. However, for most companies, this is not the case, and the business needs to be valued as if it will continue operations. This leads us to a method that is a better indicator of value for a business that will continue operations--the income approach.

The income approach is based on the principle that a business is worth the present value of the future benefits of ownership. The approach estimates the income generated by the company and discounts them at a rate that reflects their inherent risk. The income is estimated based on historical information and forecasts. On the other hand, the discount rate (cost of capital) is estimated using a variety of methods that consider the market holistically, the specific industry, and the specific subject company. The cost of capital is then used to calculate the capitalization rate by subtracting the estimated long-term growth from the cost of capital. I recall doing this calculation in my financial analysis class, but as I mentioned earlier, the appropriate cost of capital and long-term growth had to be estimated instead of having it provided or simply finding it on the Internet.

Last is the market approach. This approach could be extremely complicated or completely irrelevant depending on the company being valued. It seeks to give a ballpark for the company’s value. Similar to an appraisal, the method compares the subject company to guideline companies operating in the same industry. These guidelines companies are typically publicly held, but private companies can be used if they were recently sold. Obviously, no two companies are the same, so the goal is to develop appropriate ratios that can be applied to the subject company. These ratios are typically revenue and EBITDA multiples from guideline publicly traded peers. Many times, the engagement team will use regressions to find the calculate the relevant multiples. I became very familiar with regressions in my accounting analytics course this past semester, which allowed me to understand their calculations.

After the three approaches are calculated, the team can pick the most appropriate one or a combination of the three weighted appropriately. This brings you to the market value of equity. However, there are a few valuation adjustments that are required for a final number. One of these common adjustments is a discount for lack of liquidity. The privately held nature of the companies makes these companies difficult to liquidate because, unlike public companies, their shares are not sold on a public stock exchange. Investors value liquidity, so there must be a discount for lack of liquidity. Another one of these adjustments can be a discount for lack of control. A controlling interest has more authority and can unilaterally make decisions for the firm, while a non-controlling interest relies on the controlling owner to make decisions for the firm. They cannot even receive a distribution or dividend without the controlling owner's consent. Thus, there is a discount for the lack of control and a premium adjustment for a controlling interest.

Once these adjustments are made to the enterprise value, the engagement team can conclude the final market value of equity of the company. I enjoyed how this process used so many different concepts from both my finance and accounting classes. I also appreciated the autonomy the engagement team has and the reasonable judgments they are forced to make. Along with assurance, it is a practice that I would be very interested in pursuing after college.

Mastering the Software

The onboarding process at EisnerAmper was extremely thorough and helped prepare us for the work to come. It lasted the entire first week but provided us with helpful tools and insights that proved to be beneficial for the rest of the summer. Much of its concentration was around CCH Engagement.

CCH Engagement

CCH Engagement is one of the most common and central tools to any audit and its prevalent in many accounting firms across the globe. It is essentially a data storage center. It contains all the engagements in what they refer to as “engagement binders.” These massive binders hold all the working papers, audit evidence, and templates needed to complete the audit. Anything relevant to the completion of the audit is all there, and only the members of the engagement team assigned to that specific audit have access to make any changes to the binder. We learned how to sync binders, which updated the changes we made and the changes others made. We had to learn how to check in and check out working papers. Similar to your local public library, when you check out a working paper, you are the only individual that can make changes to it, and once it is checked back in, it is free to be edited by anyone that first checks it out. 

Excel and Word

The majority of these working papers were Excel sheets and Word documents. The opportunity to complete tasks in these templates developed my proficiency in both software programs as their completion required an in-depth knowledge of the applications. Although Microsoft Word is a very useful and essential tool, I took a keen interest in developing my skills in Microsoft Excel. To supplement the Excel expertise, I was gaining through completing tasks for my engagement team, the firm provided online webinar trainings for Excel. There was a Microsoft Teams call put on by some of EisnerAmper’s associates in the Philadelphia office for the interns that was especially helpful because they applied Excel skills to the specific working papers that we would typically complete. While I had down time at the beginning of the summer, I would often complete the asynchronous trainings that they provided from their expansive online training library. These were more customizable, so I could narrow down one specific area of skills that I wanted to build competence in.

The skills I learned in Excel and Word will undoubtedly translate to whatever profession I decide to undertake after graduation. They are almost universal in offices around the country and apply to so many different industries. I believe the training I received will be a massive benefit whenever I begin working full-time and can give me a head start over some of my peers.

Contribute to Team Collaboration

An essential skill in the audit profession is the ability to collaborate and work effectively with a team. The skill is not only essential to auditors but is necessary and sought after in almost every industry. Without it, I would not have been able to learn nearly as much as I did. Learning from face-to-face interaction and instruction is extremely effective. Building my collaboration skills allowed me to soak up as much as I could from staff, seniors, managers, and partners.

Effective team collaboration also aids feedback and constructive criticism. Receiving constructive criticism can accelerate your improvement in many different areas. Any successful professional has a very acute understanding of their weaknesses because they have used them as a guide to their success. Feedback was essential to every task that I completed. Hearing back from my manager or senior on my work ensured it was completed to the best of my ability and enabled me to make a substantial contribution to the team.

Being able to collaborate with my co-workers was one of my biggest takeaways this summer. It was central to everything I did. I would not have learned and improved nearly as much as I did without it.

Conclusion

Overall, I thoroughly enjoyed my time at EisnerAmper this summer. I had no idea just how intricate and complex these large-scale mergers were beforehand. The ripple effect was much larger than anticipated, and I felt its impact at the intern level. Its biggest consequence for me was the lack of work, and I refused to let it ruin my experience by using my free time to develop skills and expand my knowledge of the industry. Yet, by the end of the internship, I had done plenty of audit work to develop a deep understanding of the audit process as well.