Blue Elevator Blog

VAC

The name of the game is VAC. VAC stands for validity, accuracy, and completeness.

In this article, we will outline some key financial objectives that you should always pursue.

The Illustrious 80s

In the 1980s, we had 10.5% interest rates for mortgages.  We had the Junk Bond crisis.  Plus, we had the failing of the Savings & Loans.

We had some pretty good music being put out. Too many good artists and bands to list ….

We also had the Big 8. These were the worlds 8 biggest accounting and auditing firms.

• Arthur Anderson
• Arthur Young
• Ernst & Whinney
• Deloitte Haskins & Sells
• Touche Ross
• Coopers & Lybrand
• Peat Marwick Mitchell
• Price Waterhouse

I was blessed to work for and with Coopers & Lybrand.  And, it was both in college, and in my Becker CPA review, and through the firm’s “B School” that I share the context of this message.

Auditing Objectives

There were 6 basic audit objectives that financial accounting auditors tested for.  This is how Newt Becker had us memorize it.

• E = existence
• C = completeness
• V = valuation
• A = accuracy
• R = rights & obligations
• P = presentation & disclosure

VAC

For this article, we will focus on VAC … with a slight twist on the V.

• V = validity
• A = accuracy
• C = completeness

For me, throughout my career … as an auditor, Controller, CFO … even as a business professional … I always found myself going back to these 3 key objectives.

Whether its recording financial transactions, creating lead schedules, properly stating account balances, the key is to ensure it is VAC.

In the breakdown that follows, the descriptions apply to dollar amounts, transactions, etc.  It is both very broad and very specific.

Validity

The question is whether the item is a valid item.  For whatever the population you are dealing with, you need to make sure in fact the item is a valid item. To illustrate, we will use a simple example of Cash.

• Cash disbursements.  If you are reviewing cash disbursements, was the item in question actually a valid disbursement?  Did it actually go out (e.g., check, electronic payment, etc).

Accuracy

Once you have identified that a disbursement was in fact valid, was it recorded accurately? That means to the penny.  Did the amount in the books agree to the same amount as per the bank?

Completeness

Completeness is always the tough one.  And, this is where (as auditors) we would spend most of our time.

In our example, the question is “Do we have recorded ALL cash disbursements?”

There is much to be learned in this area.  But the main point is this.

You can never obtain completeness from looking “within” a population.  You have to go “outside” the population.

In our example of cash disbursements, you couldn’t just look at what has cleared the bank.  You would have to look at the last transaction or check number for the prior month.  And, then you would have to ascertain the last transaction or check number in the current month.  This would represent your complete population of disbursements.

Conclusion

We have only scratched the surface here.  But, whatever you do, pursue VAC.

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