March 29, 2018

Blockchain: Bonanza for the Big 4?

We’ve all heard the mantra that blockchain is a disruptive technology that will turn entire industries upside down, including  legal services and public accounting.  Well, according to this Bloomberg blog, the big winners of disruption in the accounting industry will be  – wait for it – the Big 4!

Wait – what?  Yup, that’s what it says. This excerpt notes that the Big 4’s key advantage is their technology infrastructure:

As a result of technology transforming the accounting profession, “If you look at the breakdown of the profession over the next five to eight years you are going to see much more consolidation than we have seen in the past. The top four are going to be acquiring some of those in the next twenty firms. Auditing is going to be done by firms with far more technical ability than we have seen in the past. I think a large number of firms are going to disband,” said Richardson.

Translation? Regardless of your firm’s aggregate technical knowledge in auditing procedures and regulatory guidance, if you don’t have the technology systems in place, or are shortly behind in development, you simply won’t be able to keep pace with those who do.

As the accounting profession migrated from a paper and pen to fingers and spreadsheets, there was a element of instability that rocked the industry. The transition to nodes and blocks will be even more uncomfortable, but the ultimate beneficiaries will remain the same. Expect another generational wave of “Big Four” dominance in the accounting sector, even in a blockchain disrupted universe. If anything, it is another layer of concrete on top of a foundation that never seems to crack.

So, in the accounting profession, the results of this revolution may end up looking a lot like many others before it – “Meet the new boss. Same as the old boss.”

Big Data: Facebook Sells User Data – But Edgar Gives it Away!

Facebook’s in the hot seat these days for its practices regarding user data – but move over Mark & Sheryl, because it turns out that Edgar just might be a gold mine for data harvesters too.  According to this Matt Levine column, a new study reveals that not only can you review a company’s SEC filings, but you can often find out who else has taken a peek. Here’s an excerpt:

But here’s another wild thing about this paper: You can go find out which hedge funds accessed which documents on Edgar! I mean, that seems wild to me, but the authors’ literature summary mentions several other papers that use the same technique. In each case researchers use public records to figure out which hedge funds own which IP addresses, and then match the IP addresses to Edgar traffic logs that the SEC makes available.

The Edgar logs are posted quarterly with a six-month lag, and you can’t necessarily match up every hedge fund with an IP address, so you can’t find out, say, what companies Dan Loeb or Bill Ackman are looking at today. But you can at least find out what companies some hedge funds were looking at a year ago, and what sort of research they did. It might tell you interesting things about their investing processes.

I had no idea that you could do that, and I doubt many other people did either.  But whether the info is dated or not, in an era where everyone’s an activist target and hedge funds rely so much on stealth, is there any reason that companies shouldn’t put their big data folks to work crunching those traffic logs?

ESG: 85% of S&P 500 Issue Sustainability Reports

According to this new report from the Governance & Accountability Institute, 85% of the S&P 500 published sustainability or corporate responsibility reports in 2017.  As this excerpt illustrates, that percentage has risen dramatically since 2011:

During the year 2011, just under 20% of S&P 500 companies reported on their sustainability, corporate social responsibility, ESG performance and related topics and issues;
– In 2012, 53% of S&P 500 companies were reporting — for the first time a majority;
– By 2013, 72% were reporting — that is 7-out-of-10 of all companies in the popular benchmark;
– In 2014, 75% of the S&P 500 were publishing reports;
– In 2015, 81% of the total companies were reporting;
– In 2016, 82% signaled a steady embrace by large-cap companies of sustainability reporting;
– And in 2017, the total rose to 85% of companies reporting on ESG performance.

John Jenkins