September 25, 2020

Accounting News Roundup: Auditor Supervision and EY’s Parental Leave | 04.13.16

Auditor supervision

Believe or not, auditing a multinational company isn't nearly as fun as it sounds. If the company has significant international operations, that requires another group of auditors to be involved, sometimes of a different firm. The oversight and review of those supplemental auditors by the lead auditors isn't always easy or well understood, there are differences in quality control, methods, on and on and on. The Wall Street Journal reports that "80% of Fortune 500 audits performed by so-called U.S. global network firms […] involved other auditors" based on data from Audit Analytics and Standard & Poor's. That's the motivation behind the PCAOB's proposal for changes to how the audit is supervised by the lead firm. More from the Journal:

PCAOB inspections show that the other contracted auditors on average reviewed financial information covering between a third and half of the total assets and revenue of the audited company.

The proposed rule aims to buttress the lead auditor’s ability to detect or prevent flaws in the work of other auditors.

It will require greater communication between the lead auditor and other auditors, access to other auditors’ work papers and calls for the lead auditor to supervise the areas of greatest risk.

One guy says, "It just makes sense for the lead auditor to take responsibility for the areas that pose higher risks" and a PwC's managing partner of audit quality says the firm "is supportive" of the project. Paul Gillis says the standard would "significantly affect audits of US listed Chinese companies."

Anyone can comment on the proposal from now until July 29th. Because early reactions are positive, we shouldn't expected any hearty opposition like the audit partner disclosure, but you never know. If you're not busy today, you can read the whole proposal and statements from board members to pass the time. If you are busy, then this fact sheet should do the trick.

Parental leave

The downpour of ludicrously generous benefits continues as EY announced this morning that starting July 1, new moms and dads at the firm would be eligible for 16 weeks fully paid parental leave. This is up from their current policy of 12 weeks for women and 6 weeks for men. The firm claims that they are first to equalize parental leave benefits for men and women among the Big 4, IBM, Accenture and other professional services firms.

It is a generous benefit, I grant you, but it's also a way for EY to stand out among its peers who offer different ludicrously generous benefits. Just like PwC, EY wants all the Millennials and because many of them are starting to have families, 16 weeks of parental leave will cause many to consider EY a little more seriously.

And from an employee standpoint, this an embarrassment of riches in a country that has no mandatory paid parental leave. Any new EY parent can take off one month per quarter to care for a new child. That's pretty great. If you're among the Black and Yellow, please don't squander any of those days. Take all of them.

Going concern warnings

Warnings in auditors' opinions are rare so people have a tendency to notice when they do occur:

Ten large public companies — including 3 pharmaceutical and 4 energy companies —reported a going-concern warning from their auditor in their 2015 10-K. That’s the highest number of large public companies fighting potential permanent insolvency since 2008 when 20 companies got the warning.

The principal accounting officer of those companies — Mannkind Corp. — doesn't agree: "Given our 12/31/15 cash runway, we have fielded concerns regarding bankruptcy. We continue to explore options and, from my desk, bankruptcy is not one of them." Defiant! I like it.

Previously, on Going Concern…

I wrote about a spectacular auditor independence violation. And in Open Items: a question about respect when you're interviewing for a new job.

In other news:

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