Category: accounting

Mobile Phone Dilemma Revisited

Man on ridiculously huge phone

I listen to the This Week in Tech (TWiT) podcast.  In the most recent episode (September 22, 2013) one of the guest hosts, Brian Brushwood, remarked that even though the subsidized iPhone 5c (16GB model) cost $99 up front, it would end up costing $1,000.  So once again we have tech guys showing their inability to understand money.

Let’s break this down:

  • Up front costs = $99 + $36 activation charge = $135
  • Monthly Charges ( AT&T Nation 450 + 3GB/mo Data Plan) = $70
  • Total Contract Cost = $135 + $70 x 24 months = $1,815
  • Price of iPhone 5c 16GB without a contract = $549

Subtract the retail price from the total contract cost and we get $1,266.  Is all of this attributable to the horrors of being on contract?  Well T-Mobile has an unlimited talk & text + 2.5GB of data plan for $60/mo.  Verizon has a similar no-contract plan for the same price.  So assuming you want somewhere in the range of 2GB+ of data a month your premium for being on contract with AT&T is $10/mo, which adds $240 to the price of that iPhone.  That’s not an insignificant amount of money, but it only totals $789, which is $211 short of Brian’s claim of a $1,000 price tag.

Heck, even if you go with one of the cheaper MVNO‘s, say Airvoice Wireless, you’ll be paying $40 a month … but only getting one gigabyte of data! At least in that case, the $30  discount from AT&T will bring you to a total cost of that colorful iPhone of $1,269 if you’d gone with their contract.  However, that’s not an entirely fair comparison because you are getting less service for that price (2GB of data less.)

So once again, the alarmist claims that a “discounted” phone is anything but are completely unfounded.  Not surprising, since these are tech people; if they understood money they’d be in finance!

Along those lines, I did recently switch to Airvoice Wireless. As I’ve mentioned previously, I really only use about half a gig of data a month so the $60/mo I was paying for the calls and data seemed unnecessary.  It wasn’t a seamless process and required about an hour on the phone (using my Google Voice account through Gmail, thank goodness I had a backup!) to actually get things up and running after a half day of no service.  Which goes back to another of the anti-contract arguments: you lose the ability to jump from one service provider to another without incurring penalties.  I suppose one needs to define “penalty,” because I’ve ported numbers twice now in my life and both times required significant effort on my part to resolve the problems that providers had with the process.  Who wants to go through the anguish of changing phone providers all that often?

Well, I guess tech guys, who I imagine are inherently masochistic.


Being the Cheapest Person in the World (with the Most Expensive Phone)

Yes, this stupid thing is real.

Apple released their magical, amazing, stunning new iPhones this week.  The world was left in awe as not one, but two new models were recently announced. First is the ZOMG SO COLORFULS! 5c, and the sheik, premiere model, the 5s.

I won’t deny that I kind of want a 5s.  My aged iPhone 4 is feeling so very inadequate these days, although the new coat of paint that iOS 7 provided helps abate that new gadget lust. Of course, I am terminally unemployed, so upgrading to a fancy new phone seems a frivolous choice.  But, let’s say I did decide to throw caution to the wind, what would be the most fiscally responsible means of doing so?  That turns out to be a very controversial matter to delve into.

If one listens to podcasts or reads around online, there’s no shortage of people touting how the true cost of a discounted (or even “free”) phone from a carrier with a contract (typically two years) is up to 3x more than buying the phone outright.  The problem is these are usually tech people as opposed to accountants or finance specialists.  So while they’re very long on scary language about how you’re wasting your money, they’re somewhat short on providing numbers to support their claims or, if they do, they use incongruous scenarios to jumble figures together.

So let’s look at some examples.  Let’s say you get an iPhone 5s on contract with AT&T.  You’ll pay $200 for the phone (we’ll ignore taxes in all cases, and we’ll go with the 16GB version) + $35 activation fee + the cheapest plans they offer; 450 minutes/month for $40 and 300MB of data for $20.   Wow. That actually really sucks.  I have a grandfathered 2GB plan for $25, and I’ve rarely hit even 1GB (let alone two!) in the three years I’ve been with AT&T.  Even then, 300MB is pretty weak.  I also have 200 text messages for $5.  But really, between iMessage and Facebook messaging, you don’t really need text messages, right? Although that is eating into your data … crap. Fine. Let’s go with the 3GB data plan for $30/month.  So we’re at $235 up front, and $70 every month for two years.  This comes out to a total of $1,915 for AT&T and a shiny new iPhone 5s.

Alternatively, you could pay the $650 up front for your contract-free iPhone 5s and then get a nice cheap plan through Straight Talk (although damned if I know whether it’ll work), say the $45/month one (the $30 option has effectively no data plan.)  You also have to pay $7 for the SIM card.  Over that same two years, you’re only paying a total of $1,737.  You’ve saved a sum total of $178 over two years, or $7.42 a month!  Congrats, you can buy a cup of coffee at Starbucks each month.

Here’s the catch, to save that $178 you spent an additional $422 up front ($657 – $235). This is where the finance aspect of all this comes into play.  Are you familiar with the concept of time value of money?  Basically, it’s that between inflation, interest, and other economic factors money today is worth more than money tomorrow (or further into the future.)  You can arrive at an estimate of the future value of a present sum of money with the following formula:

Where FV is Future Value, PV is Present Value, i is the interest rate, and n is the number of periods

So let’s plug in some numbers and see how this all works out.  Our present value is the $422 difference between going with no contract versus being tied down with AT&T.  Assuming a 1.4% annual inflation rate, that takes us from $422 to $410.27 (you subtract the rate from 1 since we’re calculating inflation rather than interest.) So that’s a cool $11.73 you can take off that $178 savings.

You know, the stock market has been doing well, maybe you’d like to consider the opportunity cost of that $422 …

Emotional Wellbeing

We’re just past a year since I had to quit my job.  I’m still looking for employment.  Over the course of that year I have agonized repeatedly over my failure to hold a job for even a year.  I’ve gone over discussions, arguments, in my head obsessing over how much of that failure was my fault versus my boss’s.  I’ve often wondered if things could have gone differently, or if I’m just unemployable.  There have been instances where I thought I had achieved some kind of peace with the situation, resolving that my boss was just an asshole and it was best for me to give up the fight rather than live with the constant stress that working with him gave me.  However, shortly later I’d just feel I was lying to myself and that I was in fact worthless and wholly to blame for how things turned out.  I’ve had a lot of sleepless nights worrying about my future and my blame for it.

It’s a rare, sweet gift to be liberated from so much doubt by something other than just time.

You see, I received a very unexpected phone call recently.  The young woman who ended up replacing me had tracked down my phone number and wanted to know if I had any advice on dealing with this dreaded boss.  It seems that in eight months she was just about where I’d gotten in ten.  She had many of the same complaints about him that I did.  Sadly, I couldn’t offer much advice; my solution had simply been to quit.  It was interesting to hear that she’d taken matters as far as the HR department with no improvement in sight, showing me that even trying different things probably would have done me no good. In the end, I could only advise her not to leave until she had another job lined up (she was surprised to hear that I, a CPA, was still looking for work) and wished her the best of luck.

It was amazing how different I felt about that.  Previously, whenever I thought about my time there it was accompanied with anxiety, anger, and panic.  Recalling the name or face of my former boss would drive up my blood pressure and send me in an emotional spiral of self doubt.  Now, he’s simply a person.  A very sad, very unpleasant person.  No longer a person that embodied my failings as an employee, failings that leave me doubting I can ever have a viable career again, but just someone who it was a mistake to work with in the first place.  Even now, days later, I just don’t think that much about my time at that job anymore.  It simply was something that transpired with no emotional bearing on me at all.

I celebrated that night.  Drank about three quarters of a bottle of Bacardi 8 that I had lying around before I started throwing up.  I remember dumping out the last portion of the bottle at one point.  Not because I wanted to save myself from being drunk again, but because during the call the young woman informed me that someone I used to work with at the place (ten years earlier, when I was an intern) had passed away recently.  It was a kind of libation for the dead thing.  I was drunk at the time, but the guy had taught me a lot about what I now know of auditing.

Internal Auditors = Übermensch

What were you expecting? Business suits?

At my last job, I got an e-mail from my boss complaining about one section of an audit seeming a little anemic.  In the message, he asked how I could look for: “process inefficiencies, evidence of fraud, best practices, control gaps, areas for improvement, compliance deficiencies, contractual failures, and violations of corporate guidelines” without adequate testing.  You see, he knew that these were most of the areas that the literature on Internal Audit (IA) said was within scope of an IA department. It’s what the charter of the department said was our responsibility to look at.  Unfortunately he was unaware that’s not the required scope of every engagement.  This is nothing new; my last two audit jobs also pushed how IA needed to justify its existence by providing more value-added services (without cutting back on the non value-added work.)  This basically came down to an edict to do all things all the time and, since not sticking to schedule was such a horrific situation it all had to be done effectively instantaneously.  How? Management always insisted “multitasking” was the key.

Apparently, IA staff were expected to be no less than atomic super people capable of far more than any mere mortal.  When performing a test, usually with a specific “objective” in mind (and “objective” needs to be defined for every test; the test procedures must be engineered to achieve that objective,) staff needed to keep on top of the universe of all the other things they were charged with doing at the same time.

The human mind is subject to cognitive effect called selective attention.  This is best exemplified by the classic “invisible gorilla test.” You’ve probably seen the video online at sometime.  The simple fact is that the human mind, when given a specific task, has a lot of trouble noticing things outside of what’s necessary for that task.  About 50% of people can’t see a gorilla in the middle of some people passing a basketball when they’ve been told to count how many times the basketball was passed.

So, okay, how about the fact that auditors are highly trained specialists who should be able to notice things the average person wouldn’t?

As it turns out, specialists might be worse at it.  When a similar test was performed on experienced radiologists they proved even worse at spotting the image of a gorilla transposed on CT scans than of untrained people spotting the gorilla among basketball passers. Auditors will just need to work harder to overcome the limitations of our merely human brains.

Or maybe start exposing ourselves to radiation during training.

Internal Auditors, a Smarmy Bunch

I’m a certified public accountant, however I’ve spent most of my career as an internal auditor.  Accordingly, I am a member of the Institute of Internal Auditors and have a subscription to their monthly magazine.  It provides … well it’s fluff.  Articles are brief, lack and depth, and the publication mostly exists so that on top of the subscription fee the IIA can make money off of copious advertisements for continuing professional education providers (they were also eager to sell my name and address to these providers so I could be inundated with mailings.)

Anyway, a recent article really impressed me with its brazen detachment from reality.  The writer basically went on to promote how very important effective risk assessment was and how all risks can and should be both identified and mitigated.  To illustrate his point he discussed the 2011 tsunami in Japan.  His argument hinged on how a 900 year old scroll, basically an old newspaper, from that region in Japan described how a similarly high tsunami devastated the area back then.  With such information in hand, everyone should have planned for such a large tsunami accordingly and so they’ve only themselves to blame for the destruction wrought in 2011.

This is logic that only works in the minds of auditors.  It’s also a great example of hindsight always being perfect 20/20 vision.  It also exhibits the danger in groupthink, which is endemic in the field of internal audit.

You see, auditors–in their need to justify their existence–insist that simply dealing with financial data and controls is just too limiting to them.  As a result they’ve expanded into “risk” as a big factor in their work.  As a result they use risk to justify any and all expansion of scope in their work, all the while berating management for not evaluating risk well enough.  Invariably they fail to even properly apply their own stated concepts of risk assessment, that being the basic formula of Likelihood x Impact, and assume that because they can imagine a risk it must be significant.

In the case of the disastrous tsunami or the other go-to example, the September 11 attacks, they are always only half correct.  Yes, the impact of those events was very significant to those affected, but the auditors are very bad at recognizing the probability.  They’ll go on and on about how clearly every business needs to spend great money to fully mitigate the risk of a September 11th-level event because look at how bad September 11th was.  How eager were they to crow about impending terrorist strikes in the United States on September 10, 2001?  I was recently talking to an auditor and he mistakenly said that obviously businesses should have been preparing for such a thing given the prevalence of terrorist activities “worldwide.”  Sure, suicide bombers are “common” in the Middle East, but how much terrorism has there been in Australia?  Japan?  Canada? Why would anyone use the risk profile of a Middle Eastern country to assess risks in New York City?  Should the occasional sand storm also be taken into account when assessing risk in NYC?  Also, how well has the existence of 9/11, or the 1993 World Trade Center bombing, and even the Oklahoma City Bombing, predicted the abundance of terrorist attacks to which the United States has been subject over the past ten years?

Having trouble wracking your brain thinking of any?  That’s because there haven’t been any of that level of significance.  History can be a bad predictor of the future.  Also, the fact that something has happened in the past doesn’t make it a certainty to occur in the near future (although damn near anything is likely over a large enough time period, which I guess means companies should start planning for the destruction of the Earth which is bound to happen eventually.)  It’s that whole “likelihood” part of risk assessment that I said auditors love to ignore.  Like the 900 year old scroll describing a tsunami of size similar to the one that happened last year.  If a company had immediately reacted to the last giant tsunami and spent the money to make themselves resistant to a similarly sized on, they would have put a lot of resources into preparing for something that wouldn’t happen for almost a thousand years.  Money that could have been put to better use in numerous other ways over that thousand years.  Unless you’re talking to an auditor.