Restatements
Financial reporting corrections were down 14% last year and 60% from 2005, according to research from Audit Analytics. That's impressive! But accounting can still be tricky, as is illustrated by the wonderfully odd image on this Wall Street Journal article; there are words too:
Over half of last year’s corrections involved debt and equity, cash flows or taxes. The frequency of these errors has more than doubled since 2002, when the Sarbanes-Oxley corporate-governance law was enacted, partly to increase managerial accountability.
“These areas are complex, and they happen late in the financial-reporting process, late in the audit process, so it actually makes sense that there are mistakes in these areas,” said Trent Gazzaway, a national managing partner at Grant Thornton LLP. “I think that you were always going to see these three issues very high up.”
Audit Analytics' Don Whalen said, “Better internal controls mean you will have fewer mistakes,” and yes, that's probably true. But, remember, a fair amount of GAAP is really just people's best guesses. Take it from this guy:
“There are many estimates made in accounting, which are vetted throughout a reasonable range of expectations,” said Thomas Gibson, former chief accounting officer of Accretive Health Inc., a Chicago-based provider of support services for physicians. The company restated its 2011 figures at the end of 2014, and filed its 2012 and 2013 financials late. Mr. Gibson said he spent eight months on that effort.
Then there's Valeant, a company that seems perfectly happy to make things as complex as possible. They're restating over just $58 million but the circumstances around it have people asking all kinds of questions — good questions! — not only about accounting but operations and its business model. I guess the point is, accounting will always be a game of how far you can push the boundaries of what's generally accepted. And don't forget, the better you are at playing that game, the better your career prospects are.
Family business
There are few things more interesting than observing a family dynamic in action. If you work at a smaller firm that has many family business clients or one that specializes in running family offices, you probably have plenty of stories like these:
You might think the time I saw a father and son punching and wrestling with each other would be the worst, but it wasn’t. The worst are the psychological games parents and children play with each other, many times without the arguing or evident disagreements.
That's probably right. Physical altercations have the tendency to end quickly; people go back to their corners and it's over. But the passive aggression? Oh, boy:
In some instances the parents try to relive their lives through their sons or daughters and become jealous of the opportunities their children have that they did not. Then they get extremely upset when those opportunities are not maximized. This manifests itself in a constant nagging and harping, with a lot of nitpicking about how they would have done it better. The child never has a chance to break out and show what they could accomplish.
As an accountant, you probably don't want to see your clients unhappy, but at least you have stories to tell.
Rebound auditors
The Auditor Carousel has a doozy this week starring Skystar Bio-Pharmaceutical:
According to the 8-K, the Hong Kong version of auditor Crowe Horwath, “had to suspend audit fieldwork in December 2015 because the Company was unable to arrange visits with certain vendors, customers, logistics companies or with eth[sic] relevant State Tax Bureau.” But wait, there’s more. In a letter from Crowe to Skystar, the auditors share concerns regarding alleged fraud at a Skystar subsidiary, “including without limitation that the subsidiary forged bank statements and cash flows, manipulated financial statements, hid borrowings and guarantees, filed false tax returns, forged tax payment invoices, inflated sales and overstated revenues for 2013 to 2015.”
It never ceases to amaze me when a company issues a filing like this one and also discloses that they've appointed their rebound auditor. In this case, I'm sure Skystar and Wei Wei & Co. will be very happy together.
Previously, on Going Concern…
Turns out, there are all sorts of ways to cut people off in meetings without getting all Walter Sobchak about it.
In other news:
- In Settlement’s Fine Print, Goldman May Save $1 Billion
- "In a blistering letter to the company’s board members, PulteGroup founder William J. 'Bill' Pulte said his decision to appoint Richard Dugas to chief executive more than a decade ago was 'perhaps the biggest mistake of my career.'"
- EU to make big firms come clean on tax
- Zillow’s defense: Exec was erasing porn, not evidence
- North Korea Resurrects Abraham Lincoln to Criticize Obama
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