VideoU.S. policies—and policymakers—seem to be in the doghouse these days.
First, new findings by the Pew Global Attitudes Project say that America's image deteriorated precipitously during the month of May, mostly because of the way the government is handling postwar issues in Iraq. Now, it seems as though the souring of public opinion on the United States is extending into the accounting sector.
Finance ministers in the European Union are outraged about new trans-Atlantic directives coming from Sarbanes-Oxley Act, and are taking aim at the Public Company Accounting Oversight Board (PCAOB), one of the groups charged with implementing the new law. As a result, this week the EU ministers demanded a "full exemption" from the rules. This according to a report from international news service AFP.
The U.S. Sarbanes Oxley Act requires that public accounting firms register with the newly created accounting industry oversight board. EU officials aren't happy that accounting firms have to register with a U.S. regulatory entity.
In a letter sent to SEC chairman William Donaldson and U.S. Treasury Secretary John Snow after the PCAOB finalized its registration rules in April, EU Internal Market commissioner Frits Bolkstein threatened retaliation if the PCAOB rules were not rescinded.
On behalf of the 15 EU member countries, Bolkstein condemned the PCAOB's registration process, calling it "unacceptable given the major conflicts of law that may ensue."
He encouraged the SEC, which oversees the PCAOB, to redraft the entire plan and negotiate an alternative pact with the EU that recognizes the audit controls of all parties.
According to the current PCAOB rules, European firms will have to register with the board by May 2004. U.S. firms are required to register by October. The underlying threat: unregistered accounting firms would be banned from performing audit work for U.S. issuers.
AFP estimates that 280 EU companies either have a dual listing in the United States or are a subsidiary of an American-based public company.
If the EU's call to redraft is not met, Bolkstein noted in the letter that U.S.-based accounting firms operating in the EU would be forced to register. And not just with the EU, mind you, but with all 15 member states, as well as the 10 countries joining the EU next May.
(Editor's note: The advent of the PCAOB, along with the recent spate of corporate scandals, has put accounting firms squarely in the regulatory hot seat. The upshot? External audits may never be the same again. To find out how audits will change in the next few years, read The New Rules of Engagement," a CFO.com exclusive.)
Shelf Lives
Lately vendor allowances seem to be attracting federal investigators like moths to a flame. The allowances, also called vendor rebates, already are the subject of Department of Justice and SEC investigations into accounting practices at Dutch supermarket operator Ahold NV.
What's more, officials at two other grocery-chain operators—The Kroger Co. and Albertson's Inc.—announced this week that they were questioned by the SEC earlier in the year about how their companies book vendor allowances, reports the Financial Times.
Vendor allowances are volume rebates from manufacturers that are shelled out to motivate distributors to give certain products prime shelf space at retail outlets. Executives at Ahold subsidiary US Foodservice have been accused of booking these allowances outside of generally accepted accounting principles to inflate revenues.
Executives at Cincinnati-based Kroger, which operates 2,500 supermarkets in 32 states, say they were among many major retailers that adopted a new accounting treatment for vendor allowances starting in January. The new treatment did not require Kroger to change SEC filings, however, and management does not anticipate any changes to net earnings based on the new accounting practices.
The SEC was interested in vendor allowances that appeared in Kroger's 2001 10-K, as well as those represented in the company's 10-Qs for the second and third quarters of 2002.
Executives at Boise-based Albertson's also recently received a letter from the SEC, notifying them of "an informal inquiry concerning how certain retailers treat allowances they received from their vendors." The management of both grocery chains are cooperating with investigators.
Former McKesson Chairman, CFO Charged
After four years of investigation, Charles M. McCall, the former chairman of McKesson HBOC, was charged with seven counts of financial reporting fraud by a federal grand jury in San Francisco. In addition, Jay Gilbertson, the ex-CFO of HBO & Co. (HBOC), the company that eventually merged with McKesson, entered a plea of guilty on a count of conspiracy to commit securities fraud, says a report from the Associated Press.
According to SEC documents, McCall and Gilbertson participated in a long-running fraudulent scheme to artificially inflate revenue and net income at HBOC, and later McKesson HBOC, to drive up the company's stock price. McKesson HBOC (since renamed McKesson Corp.) is a Fortune 20 vendor of health-care software. The company was formed by a January 1999 merger of San Francisco-based McKesson Corp. and Atlanta-based HBOC.
Reader Comments» Post a comment