Financial Accounting Blog

Thursday, September 30, 2004

I like to keep the articles that I use in teaching updated and Business Week has put out a fresh article on .... fuzzy accounting. I'm only part of the way through the article but the following quote doesn't seem right...
The upshot: The three major financial statements -- income, balance sheet, and cash flow -- that investors and analysts need to detect aggressive accounting and get a full picture of a company's value are out of sync with one another. Often, the income and cash-flow statements don't even cover the same time periods.
"don't even cover the same time periods"?? What is the author referring to?

Monday, September 27, 2004

The Big Four. Securities Law Beacon points us to this article that poses the question "Will courts kill Big 4 audit firms?"
This may be a case of Catch 22. If auditors are doing a good job, they deserve to be protected from lawsuits that could put them out of business. But without the threat of such suits, will they do a good job?

Bond Market. Have you ever searched the internet for information on corporate bond issues? Were you surprised at how difficult it was to find pricing information? Well, here is an article that says that starting October 1, the NASD will be making information about bonds easily available at this site.
Individual investors already make 65% of all trades in the $4.6 trillion corporate bond market alone, the NASD says.

At the NASD Web site, you can look up investment-grade corporate bonds and a few high-yield bonds. You can also run screens based on maturity, coupon rate, credit rating, industry group or trading date.

Tuesday, September 21, 2004

BW Online reports the non-surprising fact that a lot of companies are not ready to comply with the requirements of Sec. 404.
Even with the deadline delayed twice, many companies likely will be forced to admit to deficiencies in their internal controls -- mainly because they don't have time to fix all the problems that are cropping up before the end of their fiscal years. Auditors estimate that they'll report shortcomings at 10% to 20% of public companies.

Sunday, September 19, 2004

Auditors and Fraud. This Feb 2004 article in the J. of Accountantcy makes an interesting proposal for a change in auditors' responsibilities for detecting fraud.
One of the most difficult issues facing the profession is that there are no auditing procedures that can provide absolute assurance in detecting all fraudulent financial reporting. As a result auditors have historically attempted to avoid, albeit unsuccessfully, the responsibility for fraud detection. In the current environment, the public holds expectations of auditors with respect to fraud that simply cannot be fulfilled. The auditing profession could be better served by adopting a more holistic approach to the deterrence of fraud.

This concept, called the Model Organizational Fraud Deterrence Program (the model), employs a best practices approach to fraud prevention. Using this model, researchers would identify the factors present in organizations, both accounting and otherwise, that affect occupational fraud. They then would develop a model deterrence program based on those factors. Thereafter, instead of opining that the entity is essentially free of material fraud, the auditor would disclose the client's degree of compliance to the model.

Wednesday, September 01, 2004

Auditor Rotation. This is an interesting article on whether Italy's required auditor rotation helped to uncover the Parmalat fraud. Interestingly the rotation rule only required that Deloitte take over the Italian part of the company which left Grant Thornton to continue auditing other areas. Guess where the problems were?

Another good article on this issue of divided responsibilities here.

Stock Options. FASB received some help from the SEC's chief accountant when he told legislators that they should leave the topic of accounting for stock options up to the judgment of FASB.
"I believe strongly that FASB's consideration of this proposed standard regarding stock options should be allowed to run its full course,'' SEC Chairman William Donaldson reportedly wrote to Senate majority leader Bill Frist and other senators in an Aug. 19 letter.