Daily Financial Reports
August 31st, 2011 - 41 Comments
“In an age of lightning-fast stock trades and instant communications, yearly and quarterly financial reports seem stuck on an industrial-era pace that some say was obsolete decades ago,” Reuters reports. “Accounting experts have long called for a move to real-time, online reports in lieu of quarterly earnings statements that investors now use to decide whether to buy stocks.”
Well, not all accounting experts. Smeal’s own J. Edward Ketz and his colleague Anthony Catanach of Villanova University have serious doubts that society would be better off with this constant barrage of financials. They covered the topic recently on their blog, Grumpy Old Accountants:
Even if one could produce daily financial statements, there remains the problem of comparability. It is hard enough now to compare quarterly statements of different firms whose seasonal effects vary, but now let’s try to compare daily financial statements of CBS with Ford. This is nonsense. Even restricting such analysis to firms in the same industry will not guarantee comparability as there is too much daily variability.
Let’s now consider auditing this “moment-by-moment” report generating machine. It isn’t clear to us that the reports are auditable, except for the cash flows. Worse, how does a business concern construct viable internal controls to handle the transactions and events in such an environment? Given the pitiful state of some firms’ internal control systems, the extra strain would make a mockery of the audit process.
Having the technical skills and the technical machinery to allow daily or hourly financial reports is not sufficient for enabling continuous financial statements. No, either the accounting reports become dumbed-down or we toss accrual accounting out of the window. And audit firms have too much trouble auditing corporations now—witness the scores of restatements and accounting scandals—that they would have no chance of ever doing it right in a continuous reporting environment.
We pity the SEC if this day ever comes.
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