A company builds cars that have a self-driving mechanism. It's new technology, and you, the company, like talking about it because it's exciting — SELF-DRIVING CARS, PEOPLE! Tragically, someone driving one of your cars using this technology dies in an accident. Is this material? Does it require disclosure in securities filings? That is, do investors need to know about it? Would a reasonable person make a different decision knowing about this accident involving this technology?
Um…uh…No? No, wait. Yes! Actually, I don't think so. You know what, I don't know. Tesla, the company in question, thought nah, it's fine. They put the news in a blog post and called it a day. Now the SEC is looking into it:
The SEC is scrutinizing whether Tesla should have disclosed the accident as a “material” event, or a development a reasonable investor would consider important, according to the person familiar with the matter.
If you're erring on the side of caution, then you disclose the crash. But this is Elon Musk we're talking about; caution isn't really his thing, so naturally he doesn't think it's material. However, there is this wording from the company's filings:
Tesla has said in previous securities filings that a successful liability claim associated with its technology, including the Autopilot feature, could harm the company’s financial condition. In its most recent quarterly report, the company said such a claim “could generate substantial negative publicity about our products and business and would have material adverse effect on our brand, business, prospects and operating results.”
The company calls that "boilerplate" but it seems like they want it both ways. Their lawyers put in the CYA language, but then an accident, that could easily result in a substantial claim, involving their highly publicized Autopilot feature doesn't warrant a disclosure?
Experts differ on the materiality question, but in the end, they seem to all agree that the SEC looking into it is NBD:
“No one should be surprised by the SEC’s inquiry,” said Joseph Grundfest, professor of law and business at Stanford and a former SEC commissioner from 1985 to 1990. “And no one should be surprised if it ultimately leads nowhere.”
Elsewhere: Dear PricewaterhouseCoopers LLP: This Top 10 Tesla List Is For You
Leaving public accounting
These Ed Mendlowitz columns are growing on me thanks to statements like this:
Generally speaking, many bosses do not listen to staff concerns. At many firms, there is a lack of serious mentoring and little help for staff people in managing their careers. In many practices, there is an appearance of a lack of growth, or if there is growth, then staff people are often left behind.
I believe the Big Four hire about 70 percent of the accounting major graduates, but 90 percent of them leave the profession within three years. That means 63 percent of the college graduates who want to go into accounting leave public accounting pretty quickly. To me that destroys the profession. […] [M]any people who leave their first job with a non-Big Four firm usually get jobs with another public accounting firm. This indicates that the atmosphere within the Big Four is not conducive to remaining in public accounting.
It's hard to disagree. If you think about all the people who started their careers in a Big 4 firm, how many are still with that firm or with another accounting firm? It's not that many. I can barely recommend a CPA to my friends these days.
Big 4 firms have a stranglehold on recruiting due to their relationships with the academic community and their empty promises of big pay days, prestigious clients and glamorous international assignments. After reality sets in and people learn that they need to sacrifice their lives and every relationship they've ever had to reach those promises, most want to get far away from any accounting firm.
Now, it's true that there are plenty of lousy mid-sized and small firms; but any good ones will have to convince someone traumatized by their Big 4 experience that working in an accounting firm doesn't have to be that bad. That seems like an uphill climb.
Previously, on Going Concern…
In other news:
- "It’s like, look you’re trying to figure out how the Warriors are going to do next year by asking Steph Curry’s accountant."
- Starbucks employees might be getting a better raise than some of you.
- Avoiding frauditors
- Here's the Pokémon Go explainer you didn't know you needed.
- Court ruling finds sharing passwords for subscription sites like Netflix is a federal crime
Get the Accounting News Roundup in your inbox every weekday by signing up here.