THE LIST

It has been a while since I have posted anything, but I have been compiling the List of items below related to financial statement fraud and auditing. Many of these have been addressed by others more intelligent than myself. The List does not include specific issues such as recent public settlements by larger accounting firms, the problems in the UK, the KPMG criminal trial and recent specific audit failures.

I have been trying to explain the List below and I am struggling. Occam’s Razor stipulates that the best explanation is usually the simplest one. The simplest explanation is greed. Financial statement preparation and auditing is a multibillion-dollar global industry. Thus, it may take more than my little website to disrupt it.

And these are in no particular order. Enjoy.

  1. Too Few to Fail. The oligopoly of the largest accounting firms. It’s why we can’t remove one from auditing.
  2. 1 out of 10. Controllers who feel it is part of their job to misrepresent the financial information of a company. (AccountingToday, Controllers feel pressure to cook the books, February 12, 2019, FloQast survey)
  3. 2/3.  Controllers who feel either direct or unwritten pressure to misrepresent the financial information of a company. (AccountingToday, Controllers feel pressure to cook the books, February 12, 2019, FloQast survey) In many private companies and not-for-profit organizations, this is the most senior accountant and, usually, financial person in the organization.
  4. More than 1 in 10. Managers in Europe and Australia also said that “artificially increasing profits in the books as long as no money is stolen” is acceptable behavior. (Financial Management, Managers’ quandary: Ethics or targets?, February 5, 2019)
  5. Inability to Complete an Audit timely. This is my new epiphany and a major issue. See #9.
  6. Audit Fee Pressure.
  7. Non-attest Service Revenue. The profession pushes this (better fees), but we know what happens to the audit. The focus is never on the audit. It is why the larger accounting firms are all offering supply/block chain software and services.
  8. Audit Continues to be a Commodity. How this continues to be a fact without significant changes being instituted is unbelievable.
  9. 70%. Percentage of U.S. Companies Releasing Earnings reports in advance of completed audit. (MarketWatch, Many annual earnings are arriving without an audit, and that could be a problem, January 23, 2019). Study finds that auditors are less likely to push for substantial revisions in annual report after company has announced earnings.
  10. Non-GAAP financial information. If US GAAP financial statements contain all the economic transactions of a company or organization, why is there a need for so much additional non-GAAP financial information? Or any at all?
  11. Audit Failures and Fraudulent Financial Statements. Even with SOX, Dodd-Frank, the PCAOB, the SEC, peer reviews, improved accounting and auditing standards, numerous associations, etc., audit failures and fraudulent financial reporting continue. Some might say it has gotten worse.
  12. 55%. Percentage of C Suite Executives who said they are not completely confident they can identify financial errors before reporting results. (Accounting Today, Are the Numbers Right?, March 4, 2019)
  13. 25%. Percentage of respondents (C suite executives) to an Accounting Today survey who said they have concern over (financial) errors they know must exist but into which they have no visibility. (Accounting Today, Are the Numbers Right?, March 4, 2019)
  14. US GAAP Complexity. Enough said.
  15. Cost Benefit. The primary reason given for poor internal controls and allowing frauds to persist.
  16. 55%. Percentage of investors who have only some, very little or no confidence in audited financial information. (2018 Survey from the Center for Audit Quality)
  17. Staffing Issues. Both culture and need. This problem never ends. Why does the profession still have the 150-hour requirement?
  18. Technology. Everyone thinks technology will solve the problem and help the auditor. There is only one thing technology will do and that is exacerbate the current problem exponentially. Maybe, in the long-run, technology could help solve some of these problems.
  19. PCAOB Audit Firm Violations.
  20. SOX Compliance.  Reduced to nothing more than a checklist
  21. Fraud (all types). See the 2018 Report to the Nations by the ACFE. It is at a pandemic level.
  22. Whistleblower Lives Destroyed. Who would be incentivized to report a fraud?
  23. SEC Investigations and Settlements.
  24. Materiality. The mystery amount that no one ever knows but justifies everything.
  25. Conflicts of Interest.
  26. Lack of SEC oversight on foreign audit firms.
  27. Qualified opinions or IFRS for SMEs. Accounting profession not emphasizing these as legitimate alternatives.
  28. Accounting Associations more focused on branding and fees.
  29. AICPA President makes over $2 Million a year. What is his incentive to change the way things are?
  30. What is the point of the audit? Or is the audit dead or dying? Actual Questions being asked.

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