"The Numbers Game"
The speech by the SEC Cairman Arthur Levitt at the NYU Center for Law and Business, NEW YORK, N.Y , September 28, 1998 . (http://www.sec.gov/news/speech/speecharchive/1998/spch220.txt)
Which led to the following article in the WSJ and the rest, as they say ...
SEC Holds Meetings to Discuss Accounting Woes
SEC Holds Meetings to Discuss Accounting Woes
By Elizabeth MacDonald
08/12/98
The Wall Street Journal
Page A2
(Copyright (c) 1998, Dow Jones & Company, Inc.)
The Securities and Exchange Commission, in a move that could lead to stricter auditing rules, has been meeting with top business executives and accounting regulators to figure out why more companies are having problems, SEC officials said.
The rare series of meetings, one of which will be held today at the SEC's headquarters in Washington, are being attended by the Financial Executives Institute, an association of top corporate officials; accounting analysts from certain investment houses; the Financial Accounting Standards Board; and the Big Five accounting firms, among others.
The SEC meetings were prompted by the recent rise in corporate accounting fiascoes at publicly traded companies. Just this week, Livent Inc., a theatrical producer, said accounting mistakes would force it to restate earnings going back to 1996. Over the past year or so, overcooked books have plagued more than a dozen companies and cut across numerous industry sectors. Bogus accounting has resulted in either sizable one-time charges or restated earnings going back several years and in some cases, as with Cendant Corp., a wave of class-action lawsuits by shareholders.
SEC officials declined to say whether it had invited corporate executives from companies afflicted by accounting problems. The SEC is currently investigating accounting difficulties at companies such as Cendant and Sunbeam Corp.
The SEC's new chief accountant, Lynn Turner, said he called the fact-finding meetings in order to better determine whether the SEC should tighten accounting rules. The chief accountant's office sets SEC policy on accounting and disclosure rules for corporate financial statements.
"If we can determine where the break in the process is, if any, either in auditing or on the management side, then we can better figure out what to fix," he said. Mr. Turner declined to comment on whether the SEC would increase corporate or auditor penalties for failure to catch accounting frauds.
During these meetings, the SEC will explore accounting problems that range from prematurely recording profits and deferring expenses, as in the case of food-services company Fine Host Corp., as well as the abuse of merger write-offs. The SEC has also grown disturbed by the abuse of restructuring charges for things like employee layoffs, says accounting analyst Jack Ciesielski.
The SEC may demand that the FASB, the U.S. accounting rule makers, tighten the rules covering these restructuring charges.
The SEC meetings reflect regulators' worry that if the accounting problems continue, they could hurt an already shaky stock market. Corporate executives have been under pressure by Wall Street to meet quarterly earnings expectations, and accounting watchdogs say some companies may have fudged their books to do just that.
The meetings also come amid growing concern that the accounting profession has become too lax about its conflicts of interest. The SEC believes auditing firms, which are protected from outside competition by the U.S. government, are becoming soft on corporate clients in order to keep consulting jobs. On top of that, the SEC is also investigating audit partners who leave accounting firms to get jobs at their corporate audit clients.
Parade of Problem Companies with reported bookkeeping snafus |
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3Com Cendant Fine Host Green Tree Financial Gunther International Livent Mercury Finance Nat'l Auto Credit |
Oxford Health Plans Philip Services Sony Sunbeam Thor Industries Vesta Insurance Group Waste Management |
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Source: The Analyst's Accounting Observer |
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Accounting watchdogs, too, have grown concerned that corporate auditing rules are riddled with escape hatches. In recent years, the accounting profession has tightened auditors' responsibility to detect financial-statement fraud. But still, auditors aren't required to catch financial fraud. Instead, auditors simply must plan and perform their audits to "provide reasonable assurance" that no material fraud exists in corporate financial statements. This means that if auditors simply check off a list of things they did, they will be in the clear.
"Detection of fraud is still not the main focus of an audit, and it probably never will be because it's too expensive to do," said Paul Brown, chairman of the accounting department at New York University.
There is one bit of irony to be found throughout these accounting messes. The once sleepy auditing business has suddenly become a hot market for the Big Five accounting firms, as they increasingly get hired to come in and clean up the messes created by their competitors.
Articles related thhe original "Funny Companies":
Sunbeam |
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Cendant |
Thor Industries |
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Oxford health Plans |
Livent |
