August 11, 2022

Accounting News Roundup: Auditor Report Language, Sagebot and Millennials Are Boring | 07.15.16

Auditor reports

Here's an interesting conversation between Tom Selling of Accounting Onion and David Damant who has served in various high profile roles on international accounting boards. They discuss, among other things, the language used in the auditor's report. For example, Selling would replace "fair representation" with something like this:

In our opinion, the financial statements referred to above conform, in all material respects, to the following authoritative sources: the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification™; the rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of the federal securities laws; and the administrative views of the SEC staff on accounting and disclosure issues.

That seems more precise, doesn't it? What is a "fair representation" anyway? On the one hand, it would remove a lot of expectations associated with the report and probably a lot liability, but on the other, would it render the financial statements and the auditor's opinion of them, less important? I suppose that's moot since most people don't think it's worth much anyway. 

Here's another good exchange so I'm quoting at length:

David — I am also hostile to the proposals that the auditors should say that the company is in good health etc. (which they are not trained to do anyway).  If a company goes bust a few months after giving a clean audit opinion that is not a contradiction.

Tom — Again, we agree. From my perspective, the origin of requirements for auditors to evaluate the ability of an entity to continue as a going concern was to merely serve as a Band-Aid for historic cost accounting, which would be even more misleading than usual when a company is confronting the distinct possibility of bankruptcy. The requirement in the U.S. for a going concern qualification was instituted long before the existence of any formal impairment standards or the idea that at least some assets, like financial instruments, should be measured at market value.  In 1995, lawmakers added a statutory requirement for the auditor to provide a going concern qualification when warranted (see section 10A(a)(3) of the Securities Exchange Act).

But, it doesn’t work.  If anything, auditors are embarrassing themselves in the eyes of the general public.  A Bloomberg study found that auditors failed to provide a going concern qualification for 54% of the 673 largest bankruptcies during the period studied.  From my own personal experience at the SEC as the S&Ls were unraveling, I documented for the chief accountant a very high frequency of auditors’ omissions of going concern language in reports on banks, even when the book value of net assets was substantially above market values.

Earlier this year, Audit Analytics reported the lowest number of going concern opinions since they've been tracking them. And you only need to think of the financial crisis to think of how audit firms failed to warn anyone about the precarious situation many companies were in.

The auditor's report is a funny thing — most people agree that its value is increasingly limited, however, it's ingrained into the financial reporting infrastructure. Meanwhile, procedures and methods are becoming more and more sophisticated to achieve an end result that hasn't really changed in 80 years. It's quite a paradox.

Sagebot

If you thought the machines were only going to take accounting jobs at big companies, you would be wrong:

Small business owners have a lot on their plate and having to deal with complex account software shouldn’t be something they have to worry with, at least according to Sage. The company wants to tap into the growing freelance and sharing economy (thanks Uber, Lyft, Airbnb, and TaskRabbit) and reach them using applications they’re already familiar with, particularly Facebook Messenger and Slack.

Some of the things Sage’s bot will be able to answer are how much you earned last month or who still owes you money. You should also be able to use it to document expenses such as what you’ve spent on dinner with a client last night. We’re told that the bot will respond accordingly and log all the relevant information into Sage’s system, while keeping track of all administrative issues.

"Bots enable personalization and the conversational interface can even make the experience of boring business administration fun," says a Sage guy. I wonder if small business owners will treat robot accountants with the same disdain as human ones?

"Hey Sagebot, did you record the meals expenses from my trip yet?"

"Yes."

"Oh. Uh, well, do it faster next time. And by the way…"

"I know about your next trip, already. I've recorded the cost of your airfare. I read your email, you know."

"Shut up, Sagebot."

I'm looking forward to the day when Sagebot yells at small business owners for being stupid.

Millennials are bad at this

Wait, are Millennials the ones becoming robots?

Millennials are obsessed with their jobs, socialize with friends less often than many older folks assume, and don’t seem to set much store in developing a spiritual life.

That certainly sounds like how a robot would behave, but apparently they're still showing signs of humanity:

[T]opics for which Millennials specifically expressed the most gratitude were different: “positive interactions with colleagues,” “having a low-stress commute,” “getting a new job,” “being satisfied with an existing job,” “sleeping,” and “relaxing in bed.”

Even Millennials' long-term goals are boring:

[P]opular topics included “making time to take steps toward my goals,” “work/life balance,” “achieving fitness goals,” “stopping worry,” and “reducing stressors.”

Sagebot better hurry up so we can all relax.

Previously, on Going Concern…

Megan Lewczyk wrote that accountants are becoming hoarders. And in Open Items: someone wants accounting software recommendations for a nonprofit startup.

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