As Accounting Woes Spread, So Do Concerns about SEC ; AOL Time Warner Slashes $190 Million from Ledger. Some Worry New Oversight of Bookkeepers Will Lack Teeth

Article excerpt

When a few corporate executives in handcuffs are taken on a "perp walk" into court with the television cameras humming, it does not go unnoticed in boardrooms across America.

The resulting "fear factor," coupled with new laws and regulations, is fostering more rigorous corporate bookkeeping.

Yet despite the continued drumbeat of indictments and investigations of financial fraud, some experts are questioning how deep and long-lasting the trend toward cleaner accounting practices in corporate America will be. Already, skeptics see some troubling signs:

This week media giant AOL Time Warner said this week it will restate sales by $190 million - a stunner, since many on Wall Street hoped WorldCom-style surprises were largely over. To date, 911 out of 940 major companies have certified that their books are accurate, as regulators required earlier this year.

Meanwhile, the naming of a chairman to head a new accounting oversight board, due by Oct. 28, has become enmeshed in a Washington flap. Securities and Exchange Commission (SEC) Chairman Harvey Pitt at one point favored the appointment of John Biggs, a retired pension-fund manager who supports controversial reforms. Accounting- industry lobbyists have been pressuring the Bush administration and Congress to block his appointment.

Some Republicans are pushing for the nominee to be William Webster, a former director of the CIA and FBI.

A separate concern is SEC funding. The Bush administration is asking for $200 million less in the agency's enforcement budget than was called for in a new law to fight corporate fraud.

Moreover, some proposals that arose in the wake of Enron remain to be decided by federal and industry regulators. Those include tougher accounting for stock options and forcing accounting firms doing auditing to divest their consulting arms.

How these issues play out will influence the regulatory climate corporations will face for some years to come.

Congressional mandates

"The environment has changed dramatically," says Rebecca McEnally, an accounting expert at the Association for Investment Management and Research. "Anything that brings daylight to [accounting] practices out there, ... has to be good."

Congress has gotten into the reform act with the Sarbanes-Oxley Act, which passed with broad bipartisan support in July. To comply with the bill, the SEC last week issued four rules for comment that, when finalized, will be binding on companies:

* File in their annual reports an account of internal control structures. …