$TSLAQ The 10K brought us a new document in the certification of the Tesla financials. Critical Audit Matters (CAM.) CAM is an additional level of detail to the audit opinion. Specifically, these are items of audit risk that were presented to the $TSLAQ Audit Committee. (1/17)
Areas that are material and involve subjective auditor judgement, only supported by management judgement, unusual, limited substantive testing, consultations required outside of the audit team, or dependent on management audit evidence are included. (2/17)
This is the first year of CAM. First year implementation is generally is the most detailed. Anyone remember Internal Controls of Financial Reporting (ICFR)? When implemented, individual cells of any spreadsheet used in the financials were audited (3/17)
The next item is something @montana_skeptic and @Polixenes13 may appreciate. There are 20+ academic studies examining audit failure litigation. All have a common finding: notification to the audit committee weaknesses limited civil penalty. Which means? More cowbell. (4/17)
The 10/30/19 issue of the Journal of Accountancy examined the first 52 CAM filings. The specific areas of concern were goodwill, intangibles, effective tax rates, and DTA/DTL. This is a very small sample. But, it gives an idea of risk areas with limited audit evidence (5/17)
What were Tesla’s issues? Warranties and Sales Return Reserves. First, I need to bow to the greatness of @montana_skeptic and @evebitdap ongoing crusade examining warranty accounting. My initial analysis of the account and evaluation of it’s adequacy was wrong. (6/17)
However, I do hold judgement @montana_skeptic desire to remind me of Bob Gibson's failures as a pitcher. Attached is a reconciliation of the warranty account. Anyone see a trend? Since Q12018 the reserve has fallen $460 per unit (7/17) 
I used the US warranty of 8 years and 120K miles & assumed that all vehicles were still on the road. It is a simplifying assumption but it gives the trend. Problem 1. Look at the other change in Q1, Q3, and Q4 in comparison to the provision. Problem 2. (7/17)
Warranties are accrued based on repair estimates and typically charges through COGS. Look at the inconsistent provision without any relationship to sales. Now review the other changes. Finally, examine the warranty costs themselves. Q3 to Q4 has a 27% increase. (8/17)
None of us attended the audit committee meeting, so it is subjective from here. BUT, it does seem suspect that the the highest level of warranty expense occurred in the quarter of the audit opinion. Including the other change, it is also the largest provision as well. (9/17)
If accounts receivable is a mystery, its cousin, sales return reserve, is a Snallygaster. Rev Rec standards were changed effective 1/1/2019 with early adoption allowed on 1/1/2018. $TSLAQ was an early adopter (10/17)
At the end of 2018, the account has $191m with a 12 month contingency of $149m. Based on 2018 filings, it was accrued to support guaranteed lease residuals and buyback price guarantees for models X/S. Which seems reasonable in intent of the accrual (11/17)
Q1 2019, a $500.5m accrual was made with no real supporting information in the 10Q as to why it needed a material 235% increase in the account. Most important, no 12 month contingency was reported until 9/30/19 of $80m. See attached spreadsheet (12/17)
Look at the 12/31 accruals. Yes I believe that is correct and it looks very similar to warranties recon. Manipulated. Specifically, the quarterly accrual and the associated COGS in Q3 and Q4. Now glance at the disclosed payments stopping in Q4. (13/17)
If any of this looks reasonable, I would like to hear the logic. Page 43 of the 10K references buyback options under current sales. Page 52 makes an initial note of Model 3 sales under guarantee. Page 71 now explains variable consideration as part of the guarantee. (14/17)
Previous Q & K noted the guarantees were part of a leasing program which are starting to disappear from the notes as part of this reserve. Now look at the reserve in terms of the A/R growth as a gross receivable. It is 33% of the entire receivable (15/17)
@markbspiegel had an explanation for the A/R last week. Payment was contingent on third parties ability to sale or get lease financing. In accounting, this relationship would be a accounted as a sale with right of return. (16/17)
Based on the changing disclosures, it appears that the 10K is now supporting this assertion. Not a weekend at end of month or a pesky banking system in the EU. It's the assumption of credit risk to move metal. (17/Fin)
