As CPAs shoulder new requirements, workloads shift through the profession.
by Rick Telberg
At Large
Considered by some a slap across the accounting profession's face when it was enacted in 2002, the Sarbanes-Oxley accounting reform law may have become a business ally for accounting firms of all sizes and finance professionals of all types.
In addition to heightening the public's appreciation of audit services, the law's multitude of new financial reporting requirements has created new work for the larger firms that typically handle public-company reporting, and they have passed some of the work to their smaller brethren. Last week, we began reporting on the results of the study with the views of AICPA Chair Bob Bunting, in "Bunting Sets Agenda for New Year." [See some reader responses below.]
"The Sarbanes-Oxley Act should have been called the Full Employment Act for CPAs," said Thomas Marino, managing partner of New York-based JH Cohn, one of the profession's 10 largest firms. He notes that because they are unable to handle all the new reporting requirements for all of their clients, the national firms are culling clients, which are then picked up by regionals like his, who, in turn, are culling clients being picked up by smaller firms.
Joel Sinkin and Terrence Putney, principals with Blacklake Transition Solutions, a M&A consultancy for accounting firms, say the SOX phenomenon has created a supply/demand imbalance at larger firms that is indeed trickling work down to smaller firms. Local and regional firms able to muster the necessary resources will be positioned for more growth in the near term, they add.
Dana R. Hermanson, accounting professor at Kennesaw State University in Georgia, noted that the law's additional reporting rules, particularly its section 404 requirement that companies audit and sign off on the integrity of their financial reporting systems, will ultimately improve the accounting process and rein in the potential for Enron-like accounting scandals.
Joseph Eckelkamp, president of Eckelkamp and Associates, a St. Louis-based regional CPA firm, said he's been handling a lot of new audit clients as "the big guys move away from my marketplace, increase their prices and focus on SOX services I don't provide." He noted that a big part of his new work is internal audit assignments referred by external auditors whom SOX precludes from serving as both an internal and external auditor for the same company.
Likewise, Gary L. Sundem, Julius A. Roller professor at the University of Washington Business School in Seattle, called the law "the Accountant's Employment Act of 2002," and notes that the profession is scrambling to carry out all the new work it has created.
But Sundem warns, "There remains much to do to recreate confidence in the accounting profession. We are moving in the right direction, and I only hope it is fast enough to avoid future scandals."
That warning is not lost on practitioners. Jake L. Netterville, chairman of Baton Rouge, La.-based regional firm, Postlethwaite & Netterville, said, "We must remember that Sarbanes-Oxley was passed with great haste and is imperfect at best. The profession should continue its quest to improve on it."
Marino added, "I think the big uncertainty that exists is what will happen when we have the first accounting failure on a company that has received a clean opinion on their 404 work?"
That's a thought to make one shudder anew. All CPAs have a stake in seeing that it doesn't happen.
READER REACTION TO "BUNTING SETS AGENDA FOR NEW YEAR"
He's right on track.
-- Neil Galanti, CPA
Dunwoody, GA
I agree with the AICPA agenda; however, as finance director for a city of 20,000 I am finding it very difficult to explain why we should be reporting under GASB. The response I get is, "There is no law that says we have to, so we don't want to." I understand the purpose of GASB and I am trying to comply. The only problem I have with the statements is the Statement of Activities. I find it to be very confusing and not very informative.
-- Dale Walker
I agree with Mr. Bunting that small business regulation should be appropriate to the environment that this segment of business and industry is operating within. If we apply the level of regulation now required of publicly held companies, small business will be overwhelmed and become ineffective. This will have a negative effect on the part of business that keeps this country competitive.
-- Ed Henderson
Montgomery, Texas
