These exercises are regular occurrences in, what I call, the balance sheet financing: a company pledges its assets, receivables and inventories foremost, against a line of credit. It's only natural that the financial institutions want to make sure, from time to time, that the collateral securing the loans, letters of credits, bank guarantees, etc. actually exists and is properly valued.
The banks used to be somewhat lax about it and satisfied themselves with quarterly internal financial statements and annual audit reports. Most of them would ask a client to undergo a field exam (it's always at the client's expense, by the way) only when the issue of a credit line's increase came up. However, the neverending tittering on the verge between recession and depression has changed things. The banks got burned by failing companies and defaulted mortgages. Those that couldn't recover their losses got acquired for peanuts. The remaining institutions got smarter and stricter. Nowadays, many lenders demand 2-3 field exams a year.
Most of these engagements are outsourced to specialized accounting firms, the rest are conducted by the banks' auditing departments. Either way, the examiners are constantly rotated - every time it's a new team, which is very prudent as far as the auditing standards go, but a pain in the ass for CFO's and Controllers of the companies being reviewed: you feel like a fucking parrot, delivering a summary of the company's business, its operating processes, and accounting procedures over and over again.
Many companies with significant receivables and inventories to pledge against credit lines of $10 million and up are, obviously, international businesses. The commercial globalization affects both the procurement of resources and the distribution of products. The ancient golden rule of market success still holds true: people try to buy where the prices are the lowest and sell where the prices are the highest.
Now, let me remind you, boys and girls, that the United States of America is a solitary customary-measurement island in the global ocean of the metric system. (Of course, it will cost billions to convert the entire American existence into the world-wide standard. Yet, I always thought that this clinging to the 18th century units is primarily a manifestation of our country's fundamentally puritan conservatism. But that's another joke altogether).
So, back to our examiner. On the second day of the assignment she comes to her designated point person - the borrower's CFO (the best practice to avoid someone saying something stupid, especially a CEO, is to restrict auditors' access to one person) and shows her an item on the inventory breakdown. "It says here that the cost is $1.05 per pound, but the supplier's invoice states $2,315 per em tee," she says, actually spelling the stated weight unit - mt.
Reportedly, at this moment the CFO felt like making a joke: "...You know what they call a Quarter Pounder with Cheese in Paris?/They don't call it a Quarter Pounder with Cheese?/No, they got the metric system there, they wouldn't know what the fuck a Quarter Pounder is."
But looking at the shellac-stiff blond hairdo of this Western PA resident, she changed her mind. The examiner looked utterly perplexed. So, instead, the CFO said, "This product is distributed here, in the States, and we keep the inventory records in pounds to match the sales units. However, it was purchased in Korea, so all of the supplier's documentation is in the metric system. 'MT' stands for 'metric ton,' which contains 2,204.62 pounds. So, if you divide the cost of one metric ton ($2,315) by 2,204.62, you will successfully convert it into the cost per pound ($1.05)." She writes everything down as she speaks, so that she doesn't have to repeat it again; at least not to this woman.
The examiner is extremely relieved and very grateful for the little lesson. The CFO (obviously in humorous mood that day) says, "Wait until you get to our liquid products. They are bought in metric tons, stored in gallons, and sold in pounds." "Oh, my God," the auditor looks mortified.
This is not an isolated anecdote. It's remarkable how frequently this happens. I personally never met an auditor who didn't require a tutorial on US vs. metric units conversion. I'm used to the appalling ignorance. The question is: why is it Ok to come with your tail between your legs and your tongue out, asking these stupid questions? Haven't these people ever heard about Google?