Confidence in auditors
For the last couple of decades, audit firms have been complaining about the expectations gap. The Financial Times defines the expectations gap as "the difference between what the public and financial statement users believe auditors are responsible for and what auditors themselves believe their responsibilities are."
This comes up a lot in mega lawsuits like the one PwC settled in Florida last month. A company goes belly up and shareholders ask, "Where were the auditors?" Some lawyers answer, "Good question!" and sues the auditor. Every once in a blue moon, the parties wind up in court. In the case of the bankruptcy trustee of Taylor Bean & Whitaker's suit against PwC, the plaintiffs' argued that the auditors were negligent by not finding the fraud. PwC's defense centered around: "That's not our job!" and that they conducted the audit in compliance with the applicable rules. That's the gap.
You would think that with such a wide difference in understanding would leave a lot of doubts in people's minds about the ability of auditors. That is, if you described the expectations gap to a person on the street, would you expect them to have a lot of confidence in what auditors do? Next time I want to repel a stranger with my conversation, perhaps I will conduct this experiment, but for now I'll refer you to the findings from the Center of Audit Quality's Main Street Investor Survey. Here's a portion one of the tables from that survey:
I wonder if the 81% of the 1,004 investors surveyed would still have confidence in auditors if one of the companies in their portfolio went bankrupt due to a massive fraud? I also wonder if those same investors would've expected the audit firm of that company to have found the massive fraud? And I wonder if the audit firm said to those investors, "Well, sorry, it's not really our job to find fraud," if the investors would find that response satisfactory and go on their merry way, still expressing confidence in public company auditors?
How's Broward Health doing?
A couple of weeks ago, we discussed Broward Health and its break-up with its auditor, KPMG. Broward wanted to restrict KPMG's work to an unacceptable degree, so the firm walked. That was a smart move by KPMG. It was not a smart move by Broward Health who now finds itself in a pretty tough spot:
Art Wallace, Broward Health's chief financial officer, said he had discussed the problem with the banks that administer letters of credit for the bonds and that they appeared receptive to granting extensions. The best scenario, he said, would be extensions, the hiring of another firm that provides a clean audit, and no significant financial consequences.
Under a mid-range scenario, the district would have to submit to an accelerated repayment schedule, coming up with $211 million over five years. At worst, it would have to pay $282 million in a short time frame to pay off the bonds, which would cost the district about half its cash reserves.
"What the presentation proved is it's imperative that we get an auditing firm here immediately," board member Sheela VanHoose said. "As a board, this has to be our No. 1 priority."
Good luck with that.
Paperless offices have their advantages
There are plenty of obvious reasons to have a paperless office and even some not-so-obvious ones:
The Chamis and Kelly Accounting and Insurance office, off Riverside Drive, burned fiercely Sunday morning, taking boxes of paperwork with it.
Española Fire Lt. Johnny Martinez said the cause of the fire was not clear, but firefighters received the call at 2:30 a.m., Sunday.
“We ended up calling the state fire marshal’s office,” Martinez said. “It was suspicious and it’s under investigation.”
Martinez said, by the time firefighters arrived, the whole front of the trailer was in flames and the rest of it was burning, as well.
“It went up so quick, we’re sure there was a fuel load in that place, what with all the files and paperwork,” he said. “It took us a while to just put it out. Then we had a flare-up from the piles (of paper). That thing burned really hot.”
That's right, a paperless office will help you avoid suspicion when your business burns to the ground. Keep it in mind.
Has Donald Trump released his tax returns?
Nope! And New York Times columnist James Stewart has been sufficiently worn down so he'd settle for "your adjusted gross income and actual federal taxes paid for the last five years, certified by your accountants." No stamina! Sad!
Previously, on Going Concern…
I mentioned a survey that found accountants to be more eligible than car salesmen.
In other news:
- Chesapeake Energy Gets Subpoena Seeking Accounting Information
- Not everyone's worried about the future of accounting.
- IBM to Acquire Promontory, a Financial Consulting Firm
- Spacecraft Crash-Lands on Comet in Epic Mission Finale
- Pumpkin spice fries.
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