Now that you’ve enjoyed the extra hour of tomfoolery thanks to the time machine known as daylight savings time, it’s back to reality.
For auditors working on SEC filers, this means seeing less daylight from now until…well, yeah. The good news is that there’s only one week until the filing deadline for accelerated filers’ 3rd Quarter 10-Qs. For those of you on the non-accelerated types, you’ve got an extra week which could be a lifesaver or just a way to prolong…the…agony.
The bitch of the thing is that for those of you that are/will be going down to the wire, the deadlines fall on Mondays which means your weekend will likely consist of a slumber party at the client’s digs.
So for those of you that live and die by the calendar year SEC deadlines, discuss your Q3 and if it’s business as usual or if your engaging in the standard quarterly rhetoric about how you’re finding a new job right after the Q is filed.
Category: Audit
Are Going Concern Opinions the Kiss of Death?
One thing is for sure: clients don’t like getting them. Auditors may even go out of their way to not give one in order to maintain “excellent client service” or whatever the latest buzz phrase is.
Many companies risking the dreaded explanatory paragraph arrived there on their own accord but if a company is legitimately trying to recover from their stay in financial intensive care, auditors may be piling on by issuing the GCO.
CFO:
Such a qualification can result in tougher-to-get and more expensive financing deals, just when the company is most in need of a break. Indeed, once hit with a going-concern qualification, companies may succumb to a “self-fulfilling prophecy,” say accounting observers. The pariah status such an opinion confers all but forces investors, suppliers, and lenders to turn away, often driving a company on the brink of bankruptcy into a Chapter 11 filing.
CFO’s piece cites the opinion of Al King, former Chairman of the Institute of Management Accountants, who mentions the guidance of auditing rules “don’t allow auditors a wider range of possible warnings.” The situation comes down to one of options: 1) we’re cool or 2) we’re doomed.
That may be a valid point but the idea of an explanatory paragraph that discusses the alignment of the planets along with management’s brilliant plan to save the sinking ship doesn’t seem like the answer.
Nevermind breaking the bad news to your client, who may be living in denial over the state of their company. Or as the Overland Storage situation demonstrated, clients just get their panties in a bunch and start firing auditors. But you still have to the your jobs, amiright?
The GC opinion. Discuss any experiences you have had in comments. Did it involve grown men sobbing like children? Delusional clients? Maybe just gnashing of teeth? Or did the partner fold like a cheap lawn chair in the name of client service?
Living with a Scarlet Audit Letter [CFO]
Deadline Watch: Employee Benefit Plans
Did Dow 10,000 get you excited about your 401k again? No? Just a psychological level? Bah. “We don’t give a damn because we’re still down from the highs you jerk.”
Fine, you kill-joys, regardless if you still consider your nest egg to be in the crapper, there are lots of people out there that ingested inhuman amounts of MSG last night to get employee benefit plan audits completed and submitted with their Form 5500s for today’s deadline. This is our tribute to them*.
Sure, EBP audits are the redheaded step-child of audits but they keep some of you employed, they’re profitable and low risk so everybody a few people win. Good work EBP trolls, finish up and go get your drink on.
*Maybe we were just waiting until the day of the deadline to mention EBPs. Didja ever think of that? Didja?
PCAOB: We’re Not Saying Perfect Audits, Just Pretty Perfect Audits
The public understanding of what auditors actually do is, to put it mildly, frustrating. If you were ask the average dude on the street what auditors’ responsibilities were, “Find fraud” would probably be the first thing that you would hear.
With all the public outrage against everything remotely related to finance or accounting, politicians feel like they have to do something. This usually amounts to putting pressure on bureaucrats, who in turn make rules to appease said politicians who can then point to accomplishments.
The PCAOB is no exception, and regardless of its potential extinction, has a go-getter attitude that includes potentially making the public’s perception more of a reality.
FEI Financial Reporting Blog:
Although not part of the PCAOB’s formal standard-setting agenda for the upcoming year, some SAG members argued there was a need for the PCAOB to revisit the fundamental fraud standard (SAS 99) as a standalone or ‘foundational’ standard, in much the same way as the PCAOB is in the process of re-proposing its suite of risk assessment standards as ‘foundational’ standards.
You probably know where this is going:
In response to questions, Silvers said, “We should not expect that every audit is a forensic audit… that’s absolutely not what I’m saying.” However, he added, “I think we need to move the dial a little bit so auditors have some greater obligation than is currently embodied in the current fraud standard, to have an obligation to act when there is reasonable suspicion of fraud.”
“This was subject to some extensive discussion in the Treasury committee (Treasury’s Advisory Committee on the Auditing Profession or ACAP],” said Silvers, adding, “some people, Lynn [Turner], may feel my approach is not tough enough, some people felt we should move to some absolute liability standard [i.e.] if you don’t find fraud, it’s the auditors fault; but it’s also not my view that looking for fraud is not related to the audit, that doesn’t parse with the public’s [perception] of the audit profession.”
Our emphasis. So not every audit will be a forensic audit, so, just most of them? That’s a relief.
So not only do you need to get way better at auditing fair value, now the brain trust at the PCAOB is considering putting more auditor flesh on the hook when it comes to finding fraud. So not absolute assurance but it’s getting there.
PCAOB Announces Ambitious Agenda; May Be Time to ‘Dial Up’ on Fraud, Silvers Says [FEI Financial Reporting Blog]
(UPDATE) Is the PCAOB Going the Way of the Dodo?
Who knows? Our separation-of-powers principles knowledge is pretty much zilch. However, the PCAOB is currently “doubly insulated from both political pressure and presidential oversight” which some – including the Plaintiff in the case, First Free Enterprise Fund – think is unconstitutional.
The case, First Free Enterprise Fund v. PCAOB, will be argued during the new session of the U.S. Supreme Court on December 7th. Here’s the take of our sister site, ATL, last year when the possibility of the SCOTUS hearing the case first came up.
More, after the jump
We won’t rehash the whole immaculate conception of the PCAOB, as you’re all familiar with that story. First Free Enterprise Fund v. PCAOB, however, could make things interesting: “This case has the potential to undo the SOX accounting and auditing reforms. As such, the result may impact not just the auditing profession, but also every public company as well as the users of financial statements of those companies.”
‘Undo SOX accounting and auditing reforms’? That sounds kinda serious. We won’t go so far as to suggest that you start forgetting everything that you’ve been trying to get your heads around for the past seven years, but there’s at least a possibility that the PCAOB could become extinct. That could be exciting, or it could make you completely f*cking miserable again.
New Court Term May Give Hints to Views on Regulating Business [NYT]
The Supreme Court Term – Significant Cases for Business [SEC Actions via JDA]
Supreme Court Obsessed With Business This Session [Law Review]
KPMG Arrives at the Paperless Audit Party
We’ve received several reports about Klynveldians attending “eAudit” training this summer which marks the firm’s attempt to get break into the “paperless” audit world. Reports have been mixed with some saying that it’s best technology KPMG has invested in but others claiming that it will only run on Vista which may be problematic when Windows 7 rolls out.
Forgetting the technology mumbo-jumbo, it’s been long rumored that KPMG was the last major firm to make the move to a paperless audit. This could have been due to a number of things:
More, after the jump
• Partners that have been around since WWII that can’t even use email put the kibosh on the whole idea
• M-O-N-E-Y
• Accountants, in general, resist the idea of trying a new restaurant so don’t even think about messing with their audit methods
What’s more surprising is that some Radio Station clients have said that they prefer the old school audit. Not exactly sure what is so appealing about young auditors schleping around boxes of binders that weigh a few metric asstons but whatevs.
Our point, dude, is that KPMG has finally caved on this whole “paperless” idea. Since audits aren’t truly paperless we’re not sure what all the fuss is about but KPMGers got an extra week in Florida in the dead of summer out of it. Discuss the firm breaking into the new century in the comments or let us know how terrible your lives will be because of it.
Last Call for Q2 Meltdowns
Last week we checked in with those of you working on 10-Q’s for the second quarter and it sounded like it was pretty quiet.
Large accelerated filers have until 5:30 EST today to get their 10-Q’s submitted. Any last minute meltdowns out there? Anyone going on 48 hours of no sleep to pull this one off? Let us know in the comments or email us at tips@goingconcern.com.
Add Another Hoop to the Audit Process
In a move that probably just adds one more annoying hoop to jump through for auditors, audit engagements will now go through quality review with adoption of AS No. 7, Engagement Quality Review (EQR).
According to the press release, “The EQR standard provides a framework for the engagement quality reviewer to objectively evaluate the significant judgments made and related conclusions reached by the engagement team in forming an overall conclusion about the engagement.”
We’re hoping the engagement quality reviewers will be given free range to document their “overall conclusions” as they wish. Some that we would suggest: “You call yourselves auditors?“, “I’m recommending that the PCAOB inspect this engagement” or “What in God’s holy name are you blathering about?“. It would be a shame for the firms to institute a check-the-box method that would compromise artistic integrity.
In other PCAOB news, the Board is asking for comments on its Concept Release “to consider the effects of a potential requirement for the engagement partner to sign the audit report.” We speculated last week that signatures in blood or dog excrement might be appropriate in many cases but if you’ve got other ideas, you’ve got 45 days to give them better suggestions.
Press Release [PCAOBUS.org]