AYX accounting firm change

In January, AYX announced that it will be changing its accounting firm from PricewaterhouseCoopers (PwC) to Deloitte & Touche. I don’t recall if the reason for the change was previously discussed here, but here’s the reason:

In accordance with the standards of the Public Company Accounting Oversight Board, at a meeting of the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) on May 7, 2018, PwC provided the Audit Committee with a letter confirming that PwC was independent and could serve as the Company’s independent registered public accounting firm for 2018. PwC also communicated during its routine quarterly communications with the Audit Committee throughout 2018 that no independence matters had been identified subsequent to the date of the independence letter.

On January 17, 2019, following an internal review by PwC, PwC notified the Company that PwC had increased its use of, and communications and services related to, the Company’s software platform with its clients and prospective clients in 2018 and that this creates the possible appearance of a business relationship contrary to auditor independence standards. Based on its current assessment, PwC communicated to the Company that this concern did not extend to 2017 or any prior year.

As a result of the foregoing, the Company and PwC mutually agreed that it was appropriate for the Company to consider retaining a new independent registered public accounting firm and, accordingly, the Company dismissed PwC as the Company’s independent registered public accounting firm, effective January 24, 2019. The decision to dismiss PwC as the Company’s independent registered public accounting firm is not for any reason related to the Company’s financial reporting or accounting operations or policies*. The decision to change independent registered public accounting firms was approved by the Audit Committee.*

Alas, the only reason is that PwC has increased its use of Alteryx products and services, but also that a number of PwC’s clients and prospective clients also use Alteryx. That’s obviously a good thing, but one thing about this reason that doesn’t make sense is that won’t all the other accounting firms have the same issue? And what about a company like MicroSoft which must sell to most of the world’s enterprises? Why wouldn’t this create a similar issue? Also, will all the other major accounting firms also eventually have an issue with appearing to be independent?

Chris

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Alas, the only reason is that PwC has increased its use of Alteryx products and services, but also that a number of PwC’s clients and prospective clients also use Alteryx. That’s obviously a good thing, but one thing about this reason that doesn’t make sense is that won’t all the other accounting firms have the same issue? And what about a company like MicroSoft which must sell to most of the world’s enterprises? Why wouldn’t this create a similar issue? Also, will all the other major accounting firms also eventually have an issue with appearing to be independent?

I hadn’t thought of it that way. Merely thought of this as a good thing representing more usage of AYX, but your question is definitely valid. If all of an accounting firm’s employees use iPhones…is that a conflict in auditing Apple? How about Cloud Providers? Maybe they get around that by using multiple vendors. If an accounting firm uses a payroll system, are they not allowed to represent that company? ADP may have had a tough time in the past finding a competent accounting firm.

At any rate, Chris’ question does raise a small amount of doubt though I would tend to let AYX’s numbers speak for themselves still and it is a mid-sized holding.

Regards,
A.J.

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Having worked at Deloitte inside one of their “member” companies there are various ways they deal with this. For one, we as technologists once becoming management level in certain localities had to not invest personally in certain companies that were audit clients of the firm. They have a very stringent system in place to consider whether any given individual has a conflict of interest.

The company as a whole is not the issue as large accounting firms tend to be constructed of various member firms with audit usually then making up parts of those. The issue is when those on the auditing side of the house also become users of a particular product to the point where if that product went away it would cause detriment to the business. This is nebulous and so the tendency is to steer clear for those parts of the firm from the issue at all. Where it becomes very difficult is when a software is ubiquitous, like Microsoft. Auditors live off of excel… but their business relationships do not… then they let the lawyers determine how much risk there is.

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Hey Chris, you are off chasing windmills here. This was discussed on the board, and by Bert, in January. The change was because Price Waterhouse was a reseller of Alteryx and the business had become large enough to become “material”, and they would rather give up the business of auditing Alteryx than give up the business of reselling Alteryx to their other customers.

Here’s what Bert said, from my notes so possibly with some slight paraphrasing, and I quote below.

Saul

Bert’s Take:
"Alteryx announced selected results of its fiscal Q4. The results were announced in conjunction with a change in auditors. It had employed PwC as its independent auditor for several years. PwC has been a reseller of Alteryx products, and it has also provided consulting services regarding the implementation of AYX solutions. In 2016 and 2017, the amounts involved were immaterial, but in 2018, PwC’s reseller business with AYX expanded materially. The two companies agreed that it would be best to change auditors simply to avoid any appearance of a conflict, and Alteryx has decided to now employ Deloitte as its independent auditor.

The 8k filing is completely benign and presents no unusual risks of any kind for investors. There were no conflicts with regards to any aspect of the Alteryx’s business and indeed, the fact that PwC is selling AYX solutions at an accelerating pace is a commentary on the value of what AYX is offering."

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This was discussed on the board, and by Bert, in January. The change was because Price Waterhouse was a reseller of Alteryx and the business had become large enough to become “material”, and they would rather give up the business of auditing Alteryx than give up the business of reselling Alteryx to their other customers.

Thanks, Saul. I missed that. Life’s been too busy the past weeks.

Chris

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Life has been too busy the past weeks.

I hope in a good way! I know you said you were retiring again. Don’t tell me you are getting married too!!!:grinning::grinning::grinning:
Saul

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Hi guys

First ever post here and on fool. Have been a passive follower of this board and NPI. Being a technologist, I rely on this board for the financial analysis of the hyper growth names but learning a lot from the folks on this board.

Thought would share some information on Pwc and Ayx. I am long Ayx.

I thought this is a positive development due to the fact that PWC bought licenses for all its employees recently and have mandated Alteryx training to be completed by end of Q1 for all of its employees (at least US employees). I know this as I work directly with Pwc on an implemention at my firm. Seems Pwc is better of selling licenses and implementation services than auditing Ayx.

Even though my company has Tableau - Pwc showcased Alteryx for some use cases to us and everyone fell in love with its capabilities. Not sure if we went ahead getting Alteryx licenses yet as I was not directly inlvoved.

Not sure if this information is of any help but thought I would share anyways. Hoping to contribute more in the future to this board.

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First ever post here and on fool. Have been a passive follower of this board

Hi Viga, welcome to the board, and thanks for your helpful post. Hope that you will post more.
Best,
Saul

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Viga, great post and welcome! I echo Saul and hope to see you post more!