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
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.
"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