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January 05, 2018


Keith Mautner

You write, "...the world of information users awaits an empirical study of whether extended report language in that country has had any effect on investor behavior – one way or another."

I care less about the impact on investor behaviour than I do about the deterrent effect of expanded auditor reports on issuer behaviour. Of course, that is even harder to measure, but it is difficult to deny it exists.

Ergo, losses caused by Steinhoff's fraud may have been reduced by the new auditor report standard. More importantly, and more likely, other issuers concerned about the additional scrutiny that enhanced audit reports will attract, may scale back any bad behaviour (both fraudulent business practices and fraudulent financial reporting), at least to some extent, in response to this concern.

Reducing losses from fraud is just as valid a goal - and certainly more easily achieved - than eliminating fraud. It is not hard to imagine that where there is fraud, it may be dialed back to reduce the risk of being called out, or at least to moderate the severity of language that auditors may invoke based on their findings.

Jim Peterson

Keith - Thanks - interesting. Two reactions: First, if as alleged, the accounting issues at Steinhoff run to the scale of six billion euros, it gives pause to consider the extent to which losses as, as you suggest, have been reduced by the new report standard. In other words, if this is success, what would failure look like? Second, the proposition that other issuers would "scale back bad behaviour" would depend on a broadly accepted perception that extended auditor reporting attracted some form of benefit or reward for the issuer -- just the opposite of what would appear to be the case at Steinhoff. In any event, some scrutiny of facts on the ground would, as I suggest, be an appropriate starting point -- even if only to avoid the prospect of confirmation bias.

Duane Kullberg

Does anyone really care? Yes they do, but their “care” is not prompted or alleviated by the report words of an auditor. Auditors have lost the confidence and respect of the interested investor.
Over the last couple of decades the focus of audit firms have shifted from a concern for quality in their work versus their personal financial gain. The auditors followed the mood of the 90’ that “if you weren’t getting rich, you were stupid”. They forgot that their raison d’être was to develop “trust”. When they satisfied that belief, the details of their report was interesting, but somewhat irrelevant. It’s doubtful that trust can be recovered.

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