conservative

Will AS5 really make compliance easier?

Mon, 22 Jan 2007 19:01:39 -0500

We've discussed before that there are always unforeseen consequences when it comes to Sarbox. Well, no sooner has the PCAOB released AS5--the updated AS2--and already people are foreseeing some big downsides. You do have to wonder if things are really going to improve, procedurally and from a cost perspective. The critics are out in force and make some good points. Some think the new latitude is increasing the risk for auditing firms, which will force them right back into the overly conservative behavior the update was designed to prevent. Does the change from "more than a remote likelihood" to a "reasonable possibility" make a difference pragmatically speaking. This might result in even more strained relationships between management and auditors. You can see the argument: "You're focused on too many issues. Stick to the following," rebutted by, "It's our butt on the line. We'll get back to you." Another issues is technology-driven IT-related controls. As of now, auditors still examine the systems. Critics have argued they do not have the expertise. But the new standard doesn't seem to address this. We'll undoubtedly hear more about this.

For more:
- here's an article from cfo.com
- PCAOB gives top accounting firms poor grades. Article

Activist presses for Sarbox costs disclosure

Mon, 20 Nov 2006 19:01:39 -0500

Steven Milloy, who co-manages the conservative-oriented Free Enterprise Action Fund, is pressing top Wall Street investment banks to report the costs of Sarbanes Oxley. Specifically, he has asked firms to sponsor resolutions that will require them to disclose the costs and the impact on investment banking business.

If the action was politically motivated, he's preaching to the choir. Is there anyone left who is not concerned with the costs? But truth be told, this strikes me as a decent idea for all firms. It may be true that for many the costs still outweigh the benefits. But others may have finally refined their processes to the point that the costs are worth the effort. In any case, it wouldn't be a bad thing for public companies to discuss this. Of course, you would have to do the same for other laws, and it could all get a bit messy--fast. No word yet on how Wall Street firms will handle the request.

For more on this:
- read this MarketWatch article

Little movement on principles-based accounting

Mon, 04 Sep 2006 20:01:39 -0400

Principles-based accounting has long been seen as a logical alternative to the current rules-based system. The triumph of rules has resulted in a slow shift in the accounting mindset, away from common-sense judgment and toward arcane ways of staying inside the bounds of technical compliance. Leases and pension have been the hot button issues. Should we not allow companies to use their own judgment in determining at what point something should be noted as a balance sheet item? While Sarbanes Oxley mandated that the SEC look into ways to embrace the principles-based approach, it's fair to say there is no real move in that direction. Many CFOs fear it would lead to even more litigation. Others say that auditors would prove too conservative, making the accounting process all but impossible.

For more on the future of principles-based accounting:
- Here's an article from CFO.com