We published our first blog post in October of 2012. Over the past five years, our analysts have shared their insights into various auditing and accounting trends and issues. Publishing more than 300 blogs, we have covered a vast array of topics sourced from our databases such as:
- Director & Officer Changes
- SEC Litigation
- Comment Letters
- Revenue Recognition
- IPO Updates
- Quarterly Auditor Changes
Our readers use our insights to keep up with new regulations, for their own business development, and to follow market share trends. In celebration of our anniversary, we look back at five of our most-read blog posts of all time.
Back in 2014, Audit Analytics staff performed an analysis of Russell 3000 companies from 2005 to 2012. Using NAICS codes, they analyzed an industry breakdown of audit fees.
Audits fees, as a percentage of total revenue for Russell 3000 companies audited by the Big Four, show that Retail had the lowest audit fees as a percentage of revenue while the Finance and Insurance industry paid more.
In 2013, Wal-Mart had $16.6M in audit fees over $469B of revenue (0.004%). Compare that to Bank of America, which had audit fees of $90.9M over revenue of $100B (0.09%).
Number two on our list should also be a familiar topic to our readers. A public company’s requirement to file SEC forms on time is a top priority, so when a company can’t and files late, that raises red flags for investors and regulators alike.
The 2014 analysis set out to answer: After the NT 10-Q is filed, which provides for a 5-day extension, how long does it actually take companies to file financial statements?
Audit Analytics staff found that a substantial number of companies took more than two weeks to file their actual 10-Qs. Almost 30 companies (15%) took more than 90 days to file, and 13 companies never filed an actual 10-Q.
Accounting estimates continue to be a hot topic in the industry – for regulators, auditors, corporations, and investors alike. Our number three blog, posted in 2014, provided some insight of the role that accounting estimates play in financial statements.
The figures showed that the number of such estimates that had a positive impact on income has exceeded those that had a negative impact. And for the last five years, the average positive impact has been greater than the average negative impact.
Our most recent Overview on Changes in Accounting Estimates, released just this week, shows the same trend:
Over the 17 year period from 2000 to 2016, positive impacts outnumber negative impacts almost every year, at a rate of about 1.3 to 1. This suggests perhaps that management is more likely to make a change in accounting estimate if it is expected to benefit income.
Number four on our list provides an overview of the different types of financial statement error corrections. The three types of errors in order of materiality are:
- Non-Reliance Restatements – Previous and current financial statements can no longer be relied upon due to significant accounting errors, and they must be restated. An 8-K item 4.02 should be filed and the audit opinion should include a reference to the restatements.
- Revision Restatements – Errors made in previous financial statements do not undermine reliance on previous financials. Past financial statements must be restated; however, item 4.02 is not required, as past financials are still reliable.
- Out-of-period Adjustments – Errors in previous and current financial statements do not significantly affect past or present financials. Due to the low level of significance, these error corrections do not require a restatement. These errors are corrected through a one-time charge in the current period, and must be disclosed since corrections affect comparability between periods.
Audit Analytics defines a restatement as a correction of previously filed financial statements as a result of an error, GAAP misapplication, or fraud. Since out-of-period adjustments do not require a restatement, they are not included in the restatement report analysis.
To round out our top five, we have a 2014 blog about Benford’s Law. A lot of research suggests that Benford’s Law can be used to detect anomalies in data, whether from clerical errors, random chance, or outright manipulation. When a set of numbers expected to conform to the distribution do not do so, this can be a sign that there is something wrong with the data.
By using XBRL data from 2010-2012 we apply a crude version (meaning we do not control for variables) of the KS statistic on a population of 18,086 financial statements. Roughly 7% of these financial statements failed the KS statistic at a 20% confidence interval.
Companies that failed the KS statistic were 30% more likely to have an adverse 302 opinion, 45% more likely to have an adverse 404 opinion and 50% more likely to file a non-timely filing in the following two years. This means companies with financial statements that do not conform to Benford’s distribution have a greater chance of having poor internal and disclosure controls.
While Benford’s Law should not be used as a decision making tool by itself, it may prove to be a useful screening tool to indicate that a set of financial statements deserves a deeper analysis.
In addition to these top blogs, our editors have chosen a few of their own favorites:
- Netflix Change in Amortization Estimate
- What’s with SNAP’s IPO Accounting Fees?
- Where Does Hertz Go From Here?
- Pension Accounting: Transitioning to Mark-to-Market
- What Depreciation at Intel says about Moore’s Law
We would like to thank our readers for their continued interest and feedback, and look forward to providing you with insightful blogs for years to come!
Stay tuned for upcoming blogs which feature some of our newer data sets including Impairments, Mergers & Acquisitions, and Canada Auditor Engagements.
As always, let us know if you come across any previous blogs that you would like us to update, or if you have a research topic of interest that you would like us to cover. Email us at email@example.com or call (508) 476-7007.