If it is possible to be enchanted by an equation, then count Zoe-Vonna Palmrose (MBA 1978, PhD 1982) enchanted by the fundamental axiom of double-entry accounting.
Debits equal credits.
An elemental expression of life in balance.
“When I was introduced to the accounting equation in my first accounting course, I thought it was the most elegant, wonderful thing I’d ever seen,” says the Foster School’s new Hansen Professor in Business Administration. “And I’ve spent my life trying to understand it—which has turned out to be an exciting intellectual adventure.”
Palmrose, who comes to the Foster School by way of UC-Berkeley and USC, has written on the foundations of accounting and its shared provenance with the natural sciences. In 2005 she collaborated with former Microsoft CFO and Nasdaq chair Mike Brown (BA 1969) on “Thog’s Guide to Quantum Economics: 50,000 Years of Accounting Basics for the Future,” a work of “scientific fiction” that follows an immortal family of hunter-gatherer-bookkeepers through the ages as they invent arithmetic and writing, and sensibly adapt their recordkeeping to simplify the complexity of their increasingly modern economic lives.
But Palmrose is also very much planted in the real world, working on public policy issues to improve the state of accounting and auditing.
She’s increasingly concerned that accounting standard-setters have taken a wrong turn from the profession’s transaction-based traditions to market-value accounting. The current direction also raises issues about the complexity of financial reporting, the auditability of Generally Accepted Accounting Principles (GAAP), and disclosure overload. “GAAP used to emerge from the bottom up, out of practice,” she says. “But now it has become a very top-down process.”
Unlike most of her fellow CPAs, Palmrose is in a position to do something about it. Serving as Deputy Chief Accountant for Professional Practice at the Securities and Exchange Commission (SEC) from 2006-08, she worked to improve audit quality, manage the SEC’s oversight of the Public Company Accounting Oversight Board, and help rationalize the Sarbanes-Oxley Act’s “Section 404” process for reporting on the effectiveness of internal controls over financial reporting.
Palmrose previously served on the Public Oversight Board’s Panel on Audit Effectiveness, the Auditing Standards Board Fraud Task Force, and as vice-president for research at the American Accounting Association, which has twice awarded her its Wildman Medal. In 2008, Treasury and Risk magazine named her one of the 100 most influential people in finance.
But now Palmrose is focused on research and teaching. She is currently publishing and lecturing on issues related to the quality of financial reporting and auditing, including restatements, regulation and audit litigation.
She will teach financial statement analysis at the Foster School, where her journey began. “My first PhD seminar was taught by (current dean) Jim Jiambalvo, in his first course at Foster, too,” Palmrose says. “It’s wonderful to be back home and part of Jim’s team.”