Keeping Current with Financial Accounting and Reporting Standards
Standards and regulatory requirements for accounting and financial reporting don’t stand still. For many years, accounting and financial reporting standards moved like glaciers — slowly and not too far. But just like the climate, the activity of the accounting and financial reporting authorities has warmed up. In fact, it’s hard to keep up with the changes.
Without a doubt, the rash of accounting and financial reporting scandals over the period of 1980–2000 (and continuing today) was one reason for the step-up in activity by the standard-setters.
The infamous Enron accounting fraud scandal brought down a major international CPA firm (Arthur Andersen) and led to the passage of federal legislation that requires public companies to report on their internal controls to prevent financial reporting fraud. Furthermore, CPA auditors have come under increasing pressure to do better audits, especially by the Public Company Accounting Oversight Board, which is an arm of the SEC.
The other reason for the heightened pace of activity by the standard-setters is the increasing complexity of doing business. When you look at how business is being conducted these days, you find more and more complexity — for example, the use of financial derivative contracts and instruments. It’s difficult to put definite gain and loss values on these financial devices before the day of reckoning (when the contracts terminate). The legal exposure of businesses has expanded, especially in respect to environmental laws and regulations.
The standard-setters should be given a lot of credit for their attempts to deal with the problems that have emerged in recent decades and for trying to prevent repetition of the accounting scandals of the past. But the price of doing so has been a rather steep increase in the range and rapidity of changes in accounting and financial reporting standards and requirements.
Top-level managers of businesses have to make sure that the financial and accounting officers of the business are keeping up with these changes and make sure that their financial reports follow all current rules and regulations. Managers lean heavily on their chief financial officers and controllers for keeping in full compliance with accounting and financial reporting standards.