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SEC CHAIR: COMPLEXITY GIVES ACCOUNTING FRAUD A PLACE TO HIDE

December 08, 2005

We don't normally cover financial accounting issues here, but this article in the Tickmarks blog on financial accounting fraud is worth a look:

SEC Chairman Christopher Cox argued today that the complexity of accounting and auditing standards contributed to the fraud problems earlier in the decade. Cox argued that compliance with highly technical standards was used against investors instead of being used to protect investors and indicated that the PCAOB, SEC and FASB were looking at ways to streamline rules. One concern expressed was to reduce the number of sources of accounting standards. In a semi-related development, Cox also showed discomfort with the dominance of "Big Four" firms in public company audits and stated a desire to make it easier for non-Big Four firms to audit publicly-traded firms

The Sarbanes-Oxley rules have made it so difficult for accouning firms to qualify for public-company work that it has had the effect of giving the national firms a lucrative government-sanctioned oligopoly. While time will tell whether this will improve audit quality, there is reason to be sceptical.

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