September 25, 2022

Accounting News Roundup: Auditing Auditors and More Non-GAAP Fun With The New York Times | 05.05.16

Auditing auditors

The PCAOB has been around for slightly more than a decade, and in that time, there's been a lot of grumbling about how the Board approaches its work of auditing auditors. One of those grumbles is that how the Board selects which audits to audit is too focused on the highest risk engagements, leading to lots of deficiencies and possibly skewing the results. The Board seems to have been listening to these grumbles and might — MIGHT! — change some things:

The Public Company Accounting Oversight Board, which inspects major audit firms each year, is exploring a shift to focusing more on assessing the firms’ quality-control efforts, rather than looking for deficiencies in the firms’ individual company audits as it does now, according to a PCAOB member. In addition, some of the individual audits the PCAOB does inspect could be selected at random, rather than by the board’s current method of focusing only on the audits it believes are the most difficult and the most likely to have defects.

The changes would be designed to help the PCAOB better assess a firm’s overall performance and prevent deficiencies in audits from occurring rather than just identifying them after the fact, said PCAOB member Jeanette Franzel. She is expected to outline the possible changes Thursday in a speech at an accounting conference at Baruch College in New York.

Because the firms are starting to figure out the Board's expectations, Franzel says that "it makes sense" to think about how the inspection process "should change."

I think audit firms might look at this one of two ways — 1) This is great because the PCAOB would perform fewer inspections; 2) This is terrible because we've gotten used to adjusting the riskiest audits to PCAOB inspections and the less risky audits haven't caught up on QC.

Which is sorta weird to think about, but of course it's possible — a lower risk audit being more susceptible ‎ to shoddy work. On the other hand, approaching the inspections this way could result in a truer assessment of the firm's ability to follow its own rules. Whether or not that represents true audit quality is another matter entirely, since no one has really decided on what qualities a quality audit possesses. (Although people are trying.)

In any case, this shift in thinking could be in response to feedback they've received from firms in the past. So some of that grumbling might've worked.

Non-GAAP worries

Last week, we mentioned the wonderful irony of The New York Times worrying about non-GAAP accounting metrics when it reports non-GAAP accounting metrics itself. This week, The New York Times Company released its first quarter results and lo and behold, more non-GAAP accounting metrics! Here's Francine McKenna in MarketWatch:

The New York Times Company’s “adjusted diluted earnings per share” metric eliminates costs associated with employee layoffs and contract buyouts, even though they have been occurring with some regularity the last few years. The New York Times also presents a non-GAAP operating costs figure that deducts severance and non-operating retirement-related costs as well as depreciation, amortization and charges resulting from the withdrawal from multiemployer pension plans. Pulling out all those expenses helps creates a profit instead of a loss.

Abbacadabra! A five cent loss per share is turned into a 10 cent gain! They reported GAAP numbers too, naturally. It's required, you see.

Gretchen Morgenson, originator of this particular ballyhoo of non-GAAP worrying said "she can not comment on the paper’s use of non-GAAP metrics." A New York Times spokesperson said that the non-GAAP measures "give our investors the best insight into the true nature of our continuing operations." I wouldn't go so far to say they plagiarized that reasoning, but it sounds awfully familiar.

Accountants behaving badly

I guess some people need reminded that texting "graphic and disturbing sexual imagery" to others, including co-workers, is a no-no:

Nikki Ferguson, originally from Erskine but now living in Glasgow, sent abusive texts and pictures depicting disturbing sex scenes between November 2014 and February 2015.

Paisley Sheriff Court heard that Miss Ferguson, 30, who is training as a chartered accountant, sent obscene communications to two women in the Glasgow area and another man in Houston.

The court could have put Ferguson on a sex offender registry (it didn't) but also, "She was also concerned that her promising career with a Glasgow accountancy firm would have been destroyed," which is always a risk in these situations.

Previously, on Going Concern…

The IRS is hiring. Plus, in Open Items, someone didn't get promoted.

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