GAO Study Dissects Market for Final 4

A long-awaited study from the General Accounting Office shows the Big 4 auditing firms may be both more powerful and more vulnerable because of their growing consolidation of the market.

Powerful -- because they could, although there is no evidence that they have, amass the economic influence of any oligopoly. But vulnerable, too -- because they remain bitter and vicious competitors.

Still, concentration in some industries is marked. The GAO noted, for instance, that Ernst & Young holds 61 percent of the building contractors and 48 percent of air transports, that PricewaterhouseCoopers has 76% of the petroleum and coal business, and that KPMG audits 60 percent of the non-bank financial institutions.

With new independence rules barring auditors from a host of consulting engagements, it could take years for auditors and companies to sort it all out.

Full report in pdf

Sign-Offs on Financials 'Trickle Down' to Other Finance Staff
One year after the Sarbanes-Oxley Act required CFOs and CEOs to certify their company's financial statements, a new survey by the Association for Financial Professionals (AFPonline.org) reveals that companies are asking lower-ranking financial staffers to put their names on the line as well. Roughly one-third of the staffers who provide information for Securities and Exchange Commission filings are not the chief financial executives. And 80% say they worry about their liability.

SEC Staff Recommends Principles-Based Accounting System
The staff of the Securities and Exchange Commisssion is pushing adoption of a new "principles-based" system of accounting standards. More at the SEC.

While there's little proof that "principles-based" rules would have prevented any of the Enrons of the past few years, there's no disagreement that shifting to a new system of accounting would generate new and untold amounts of work for corporate lawyers and accountants. And even then, it might take another generation for courts and juries to sort it all out.

Only the study is required by the Sarbanes-Oxley Act. Don't hold your breath waiting for it to actually happen.

The most important principles are not in the accounting rules, but in the integrity of the individuals using them. Maybe we should be talking not of "principles," but of "principals."

Feds Warn: No One is Safe in Fraud Crackdown
High-profile CEOs and CFOs get the big headlines. But private companies and low-level staffers need to worry too, according to this week's At Large column.
More At Large

First Praise, Now Hisses at S.E.C.
If the New York Times says the honeymoon is over, then the honeymoon is over.

Just six months into the job as SEC Commissioner, William Donaldson is facing flak from a toughened business community that says regulatory reform is going too far, and from state regulators, led by New York's Eliot Spitzer, who battled and won against an SEC plan to usurp their authority.

More second-guessing:
In this corner, there's
Has hunt for corporate criminals gone too far? (USA Today).
And in the other corner, here's Investors need more protection, not less (CBS MarketWatch).

Post-Enron Malpractice Worries on the Rise
Get set for a new round of premium increases as underwriters try to compensate for a lousy stock market, the new regulatory risks, and consolidation among insurers.

More: Accounting malpractice insurance coverage -- A changing landscape (pdf) (free log-in req.)

Georgia (as in Russia) Selects Auditors for 3 Top Companies
The Russian Interfax news agency reports from Tbilisi that the government has selected auditors for three of the country's major companies -- and they are all United States-based CPA firms.
Ernst & Young was selected for the Georgian Railroad, Deloitte & Touche for Poti Port, and PricewaterhouseCoopers for the Madneuli mining company, the finance ministry told Interfax. Nine firms, the rest unnamed, competed for the work.
The winning bids: Ernst & Young got $395,000; PricewaterhouseCoopers, $240,000; and Deloitte & Touche, $120,000.
But the bigger meaning is the seemingly instoppable globalization of U.S.-based auditing and accounting standards and practices.
More... Interfax

XBRL Gears Up for Next Step with PR Maven at Helm
PR Newswire, a business and financial news distribution service, has become a member of XBRL-U.S., which is hosted by the AICPA, and taken on a leading role to gain widespread adoption of the new financial-reporting standard.

XBRL, which digitizes financial information to make it readable across the Internet globally, is quickly moving from the research-and-development stage to the implementation stage. So PR Newswire's involvement could be exactly what's needed at this time. PR Newswire staffer Michelle Horowitz, who has a background in working internationally and with technology companies, becomes the chairperson of the Adoption Committee. She succeeds Paul Penler of Ernst & Young, whose term expired, but who remains active in the XBRL movement.
More... XBRL, PR Newswire

The SEC, Ernst & Young, and... Harry Potter?
In another salvo at Ernst & Young, The Securities and Exchange said in court on Friday that the firm's defenses in a conflict-of-interest case involving Peoplesoft were a work of "fantasy" akin to Harry Potter. The SEC charges Ernst violated independence rules in both acting as auditor of Peoplesoft in the 1990's and as a dealer of Peoplesoft software. Ernst could be barred for six months from taking on new clients. Only KPMG has ever suffered such a fate, and that was about two decades ago, for about 90 days. "Fantasy" or not, the SEC case could rival this summer's best-selling Harry Potter 5 for drama.
More: Reuters, the NY Times, and the WSJ.

Last year, the SEC won a round against Ernst for "improper professional conduct" in the Netherlands. And it marked two firsts: (1) a win against a foreign firm, and (2) the first time the SEC collected (in this case, $400,000) from a foreign firm.
More: SEC

More Ernst in court (all documents in pdf): Complaint and Demand For Jury Trial (FDIC v. Ernst & Young) (Nov. 1, 2002) and
Findings of Fact, Conclusions of Law, Decree of Dissolution, and Judgment Entry (CEO's divorce decree) (In Re: Marriage of Bobrow) (Sept. 20, 2002)

Global Boom in CPA Demand Reaches Japan
Tokyo's Chuo University launched the Chuo Graduate School of Accounting in April, and Kwansei Gakuin University in Hyogo Prefecture intends to set up its own accounting school in April 2005. Meiji University in Tokyo and Kansai University in Osaka Prefecture will also set up CPA schools, and Tokyo's Aoyama Gakuin University is considering the possibility. The institutions are anticipating a Financial Services Agency plan to increase the number of CPAs to 50,000, in an effort to fall into line with global expectations for corporate transparency. With only 14,000 CPAs, Japan lags far behind the United States, which has 330,000.

More Telberg At Large

The CPA Economy is Coming Back
The only real questions dividing CPAs are "when," "for whom," and "how much?" More.... CPAs Bet on New Business Uptick

It's Official: Auditors Must Register
CPA firms must get registered by Oct. 22 to continue issuing audit reports on public companies. The Securities and Exchange Commission today approved the new registration rules, originally issued by the Public Company Accounting Oversight Board... More at... PCAOB, SEC

Computer Associates CEO Sees More Consolidation
Sanjay Kumar admitted at the company's annual dealer convention that they need to focus on issues important to its customers, even as the company's accounting is being investigated by the Securities and Exchange Commission and the Justice Department.

Junior Fraud-Busters on Campus
The new rules of the accounting game are generating new jobs and, better yet, more challenging opportunities. You can see the changes every day on college campuses, where fraud-busting is as sexy today as saving the environment was once before.

Sharp Increase in SBA Loans
The Administratiuon says it added 411,000 to the economy. The economy (and the Administration) clearly need it. But here's another question: what does that uptick in the debt load say about the private sector's ability to create jobs?
Comments?

Accountants Shun New Software
The story is from London, but it could play in Peoria just as well: Fear of new software is seeing the vast majority of UK accountants choosing not to learn new packages, a survey has revealed.

Spitzer-style Probes Face Curtailment
The New York attorney general is collecting $1.4 billion from Wall Street greedsters, but House Republicans are moving to make it so no other state prosecutor could ever do that again. Is it too cynical to note that he's a rising Democrat in a "blue" state on the political map and the effort at curtailment is being led by Republicans? You tell me.

How do you know when you're clueless?
Too often we don't. And in a business situation, it can cost us money. "Our guess is that because we understand what something means to us, it must mean the same to everyone else," according to the consultants at Franklin Covey. "We may assume not only that we know what they mean, we assume they know what they mean, and neither of us may have a clue."