Nate Cannon teaches accounting, ethics, and fraud detection

Nate Cannon teaches accounting, ethics, and fraud detection

Dr. Nate Cannon is an associate professor of accounting in the McCoy College of Business. He is the Scott Emerson Professor in Business Administration, a recognition awarded to a midcareer faculty member who combines impactful research with high-quality teaching and service.

A native of Las Vegas, Cannon joined Texas State in 2013. He teaches financial statement auditing to undergraduates and an advanced audit class to graduate students. He likes to say: “I basically have to teach my students how to commit fraud so they can recognize it.”

Cannon earned his master’s degree at Brigham Young University and a doctorate at Bentley University in Waltham, Massachusetts. He previously worked for KPMG, a multinational accounting firm, at their offices in Honolulu and Salt Lake City. He has consulted with the Securities and Exchange Commission and the Public Company Accounting Oversight Board (PCAOB). Cannon says he left the corporate world with a strong desire to help contribute to developing a better understanding of how the auditing environment works.

When he isn’t teaching or writing about auditing, Cannon likes photography and the outdoors — two passions he can share with his family, including his wife, Angie, and their four children.

Q: How do you incorporate your industry experience into teaching?

“I audited large banks and I was doing that in 2007 and 2008 when the sky was falling. It is one thing to say to students, "These things are really risky,’ but it is another thing for me to paint a picture and say: ‘Now imagine you are in my shoes and you are auditing a bank and all this stuff you are reading in a textbook is actually happening. Banks were failing left and right and you’re sitting there trying to audit this company and make sure these numbers are right.’

“They (students) can start to feel it. That’s valuable.

“My students will tell you that I get up on my soapbox about ethics and integrity. There are a lot of situations — in any career — but particularly in auditing where it is really easy to cut corners and to make decisions that, in the short term, look like they will benefit you. ‘If I just check this box, I can go home.’ But it is not the right thing to do and will hurt you in the long run.

“The whole purpose is to get them to think. If I am talking about risk, I’m going to paint a picture where they actually feel that risk.”

Q: What can you tell us about your research?

“I like to think my research is geared primarily to practical benefits. One of my areas of expertise is in fair value measurements. How do you put a value on something that there is no active market for — nobody knows what it is actually worth. It is really hard to come up with a value, and it’s even harder for the auditor to assess the fairness of that valuation.

“We surveyed nearly 100 different high-level auditors around the country (asking) what are they actually doing, how does this process work, what struggles are they finding? We are able to take that to the PCAOB (the industry regulator) and proposed new legislation that has become law where they cite our research.

“They say ‘here’s how we now are legislating and recommending how people should audit these things.’ In doing that, they were able to draw from some of the research I’ve done. That’s really gratifying — I’m not just in my corner writing things that two or three people in the world will read. It is actually making an impact on legislation that affects everyone in the country. Anyone in this industry, anyone that has a pension, who has invested in the stock market — they all have a stake in this game. They are all relying on this information to be correct. We don’t want to have another Enron. We don’t want another one of these companies with huge fraud going on.

“We want our auditors to get this right. I’m among a group of researchers trying to make this process as good as possible.”

Q: How do you place a value on something that has no known market value?

“What is someone willing to pay for that? If there is no market for people willing to pay for it, then it is hard to know. You could ask 20 different experts and get 20 answers. It doesn’t mean they are all wrong; it just means there is a huge range of possibilities. Somehow, you have to pick a number and pretend it is the right number.

“The financial crisis that occurred (2008-2009) was primarily related to houses. What are houses worth? You have a mortgage on a house. What Wall Street does is say, ‘I’m going to take your mortgage and this guy’s mortgage and 100,000 other mortgages and throw them in a pool, and everybody can buy a piece.’

“It became a speculation game. Everyone was invested, everyone made money if these numbers were inflated.

“Up, up it went until somebody took a needle and popped it. The whole thing fell apart and all these people who had pieces of the pie — called securities — nobody knew what they were worth. They were toxic. Nobody wanted to buy them. That gets to the heart of ‘how do you know what it is worth?’ ”

Q: Do you keep meticulous financial records? Any tips?

“I read this question to my wife and she laughed out loud. She’s always done the family finances and does a fabulous job at it.My best advice is to marry well.

“One of my favorite quotes by Warren Buffett is, ‘It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.’

“On a loan application, on your tax forms — every day or every week you are faced with a decision: Am I going to pay this? Am I going to lie about this?

“Shoot straight. Have integrity and ethics and that’s going to get you most of the way there and people will trust you.” ✪