| INTEGRATIVE INSIGHTS ON EMERGING OPPORTUNITIES |
Integrative research means our extensive company research informs every thesis and perspective. The result is deep industry knowledge, expertise, and trend insights that yield valuable results for our partners and clients.
tkiwala@firstanalysis.com
- The recent implosions of Luckin Coffee and Wirecard, among others, due to fraud indicate efforts by management teams and auditors to detect financial errors and malfeasance continue to fall short, fostering a degree of mistrust among investors that ultimately diminishes the valuation of all market participants. The problem is only worsened by the COVID-19 pandemic, which has corporate financial personnel typically working from home and makes direct supervision, internal coordination, and audit exams even more difficult.
- We believe financial software-as-a-service (SaaS) will become a more important tool in minimizing the risk of fraud in companies and other organizations of all sizes. In particular, automated financial close and internal fraud detection software reduce the opportunity for error and manipulation by minimizing manual accounting processes and highlighting inconsistencies and anomalies in transactions. They also provide management and auditors easy and comprehensive visibility into accounting systems and records. We think auditors will be a leading force in pressuring their clients to adopt these solutions.
- We provide a brief overview of these two solution categories and the role they play in mitigating fraud risk, and we highlight some representative providers.
TABLE OF CONTENTS
Includes discussion of BL, IBM, ORCL, WKL.AS and ten private companies
Massive frauds show financial systems, audits need to improve
SaaS financial automation software will likely be a key part of the solution
Automated financial close platforms bring integrity with efficiency
Internal fraud detection software catches problems outside the scope of financial close
Strengthening a key pillar of the global economy
Solid execution and guidance fuels sector's continued ascent
M&A valuations and activity reflect strong demand
Private placement activity consistent with historical levels
Massive frauds show financial systems, audits need to improve
Since March 2020, two public companies with formerly multi-billion-dollar market capitalizations - Luckin Coffee and Wirecard - have imploded due to fraud and, at least in the case of Wirecard, multi-year fraud despite having been audited without material adverse findings in prior years by its auditor, leading accounting firm Ernst & Young. Like other most other auditors, Ernst & Young certifies in its audit reports that it has examined its clients' financials using appropriate processes and that these examinations "provide a reasonable basis for [its] opinion."