The auditor depth depends. Typically, they closely look at the big ones, and then randomly spot check some smaller ones. But, if they are suspicious, or there is potential for a problem, or the company is doing unorthodox things (read: PEGA) then they may dive into it a lot more. A new CFO, or a board may ask them to get into everything. I would hope that under these circumstances, PEGA's auditors looked really, really closely.
One of the problems is that PEGA is a relatively small company. So many companies have gone public in the last year or two, and so many VC backed companies are now understanding that they need to work with a big 6 firm early on, that the big 6 are really stretched kind of thin.
I'm sure that the Cooper's A-team is not on PEGA, and that most of the auditors are on the junior side. There's surely a partner managing the whole thing, but in my experience, the partner will have minimal hands-on involvement. I have definitely seen an experienced fast talking finance team and sales team bamboozle a junior set of auditors (done it myself, but not for years).
If Cooper's is smart, they will get back into Pega pronto and revisit a lot of those contracts and maybe issue a new opinion.
One good reason for standard accounting practices is so that everything is a level playing field - so you can compare financial among companies, competitors, sectors, etc., and also understand the language, without case-by-case interpretation. It's also done so that they can file their taxes just like everyone else.
It would not surprise me if the IRS came in with a very heavy audit team. There could be major implications there. The IRS loves to set examples and teach people that you can't mess with them. In this case, they (the IRS) could be justified. A big IRS audit would tie up management, be an enormous distraction (if you were the CEO, how well would you be sleeping?), and could end up costing PEGA a lot.
Finally, the whole 5-year contract term is just so different, I don't know what to make of it. I just don't know what it would be like in practice. Is it an operating lease? do the contracts specify a given price for a buyout or a renewal, or is it at then-current prices? why would a customer even want to do this?
If someone can get me a PEGA contract, either boilerplate or an actual signed one, I would be happy to read it and give you my impression and interpretation. I'm kind of curious as to what they (PEGA management)have stumbled on to.
The fact that some really smart people at lots of other companies don't do this should mean something, but heck, it always takes someone to be first in line to be an innovator. |
