Pic credit – Huffington Post
[Black Friday] Black Friday–so named due to crowded stores, crowded roadways and bad shopping behavior–is today in the United States. It gets bad out there, as described in this Huffington post article, “9 Reasons To Stay Home On Black Friday (And Forget The Damn HDTV).”
Why do so many shoppers love Black Friday? They think they are being served by stores offering unbelievable deals, incredulous sales and stocked shelves.
But are they being served? Stores have an inclination to raise prices because of increased quantity demanded (remember your lessons from Econ 101?). They offer an occasional bargain against as stark environment. Shoppers rush in to fight against each other to grab an over-hyped bargain. There is no excuse for bad shopping behavior, but in truth the retail industry promotes it.
A popular shopping day for many decades, the Christmas shopping period now has expanded over to Black Friday eve, Black Friday week, pre-Black Friday week, and even Black November.
The shopping day was originally named Black Friday by Philadelphia police in the 1960s because it was such a horrible time of year to be serving the public. But the retail industry doesn’t care, it really is there to serve itself. It’s all about money. And money always brings out the black in business.
There are many parallels between Black Friday and Black Accounting.
Auditing firms arose in the United States in the early 1900s. The country was expanding and so was business. Against the context of unregulated financial markets, audit firms sold their services–an independent opinion –as value added. The investing public trusted these opinions and directed their capital to companies offering assurance about the reliability of the corporate financial statements.
The name of the game was independence, and audit firms were mostly independent.
But conditions changed when the federal government mandated that publicly traded companies had to purchase an audit opinion for their financial statements. The government did this in an attempt to serve the public as a means to trust financial statements. In reality, if honest audit opinions were for sale then shopping investors would rush to the stores to purchase them.
How did the large audit firms respond? Not by serving the investing public. Big audit was there to promote sky high prices, reduced costs (difficulty in suing audit firms for negligence), and barriers to entry (state licensure). And of course, audit firms always promote their services as independent when they are anything but independent.
This year, large audit firms are so completely in control of their line of business that they have defeated regulatory efforts to instill a minimum degree of independence. What are these efforts? Forced auditor rotation and a prohibition against consulting services. In reality, there can be no auditor independence when the audit firm is a business partner of the audited company. That is why this season we are afflicted with Black Accounting.
Against this bleak reality, I continue to hope for a White Christmas. I want to bury the blackness. As an investor, I hunger for honest financial statements, or at least financial statements with an honest audit opinion.
Dare I check my hung stocking on Christmas Eve?
Debit and credit – – David Albrecht
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Very well put Dave.
There is much control and strategy that goes into “Black November” from CPA investigators.
With this situation at hand CPA investigators should hold themselves much more accountable.
Tailar McCarns
http://www.mbsaccountancy.com
[…] Professor Dave Albrecht outlines the origins of public accounting and status today: Black Friday, Black Accounting, White Christmas. […]
I don’t want to dim your hopes for the contents of your stocking Christmas Eve, but you might not want to get your hopes up too high. You might, possibly, just maybe be disappointed.
The irony is my little part of the audit world outside publicly traded companies looks like the older picture you described. Many of my clients get audits or reviews in order to obtain & keep loan funding. Many others get an audit or review to help with grant requests. Some get audits or reviews as an intentional decision to improve internal accountability.
That changes the entire dynamic.
Jim,
The audit market for small businesses is a completely different animal. I was talking about big audit and big business.
Hi Dave,
You are quite correct; the market for CPA services to the small business community is completely different.
In this world, I actually have a lot of competitors. Many of my clients don’t *have* to hire me or any other CPA. Skipping the services completely is a viable option. I actually have serious price pressures as a result.
I have to deliver quality services at a competitive price. Perhaps I’m not just in another market but a different universe from the big firms.
P.S. Can’t quite tell how to post a reply to your reply. So I’m posting out of order as a reply to my own comment.
Jim,
Very well put. Different universes.
Dave
You are sooooo right about the control by CPA firms over the industry and their lack of accountability to both the stockholders and the general public. An essential reform will be to enlarge the number of CPA investigators at the state boards of accountancy to take on these misbehaving behemoths. After all, it adds up to billions of dollars of damage to the likes of you and me.
It would be increased ‘quantity demanded’ not ‘demand’. 😉 And I do remember that being pounded into my head from Econ 101.
OK, you were an econ major at BGSU. I’ll change it.