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Quit Whining
After reading your September article regarding the Sarbanes-Oxley Act of 2002 ("Sticker Shock"), my only comment is: what an incredible bunch of whiners. Somebody needs to remind these financial executives that this is what they should have been doing all along.
I would be curious to know where these individuals got their accounting degrees. When I was in school (35 years ago), Accounting 101 emphasized the role of the accountant in ensuring the integrity of the numbers we presented so management and stockholders could understand the cost of doing business and make appropriate, informed decisions. Along came the Foreign Corrupt Practices Act and its requirement to ensure that internal controls were strong through internal audit.
The reason that these financial executives are now whining and wringing their hands is that for the past 20 years they and their external auditors have not exercised their fundamental responsibility of ensuring that internal controls were in place at their companies and working properly. Frankly, I would be surprised if any current-day CFO understood their own companies' numbers sufficiently enough to discuss them in any detail. Ask one of them to explain their accounting approach to "lower of cost or market" in inventory valuation at a local subsidiary or division level. I would likewise be surprised if they could explain how their cost of sales is calculated. These are two fundamental and important valuations for any publicly traded company.
Sarbanes-Oxley is a long-overdue mandate by federal regulators. This legislation will restore confidence in the financial numbers being created (and I use the term "created" loosely) by Corporate America. For the past 25 years, the financial statements published by the majority of American companies have not been worth the paper they were written on.
Sarbanes-Oxley got it right by requiring greater disclosure requirements, executive certification, and a whistle-blower vehicle. Every time you peel back the covers of one of these scandal-ridden companies you find that the culture was such that if you raised an issue of misconduct you were fired. Real transparency is the only way to overcome this culture. I agree with Tyco's Eric Pillmore that these procedures will not necessarily prevent misconduct, but they will at least bring them to the light of day and force senior management to deal with them before the company and its stakeholders are hurt.
C. Wolowitz
via E-mail
Can Nontraditional CFOs Succeed?
While it might be efficacious to think outside the box when considering a CFO candidate who does not have a traditional accounting and finance background (Your Move, "Roads Less Traveled," August), I think it's important to note that this approach seems to apply solely to large companies.
It is doubtful that this option will work in a smaller company, where the chief financial officer must usually be an accounting and finance jack-of-all-trades and master of most. The smaller company simply does not have the luxury that a large company has of providing accounting and finance support staff to help shepherd a nontraditional CFO in negotiating accounting and finance issues.
Dominick M. Furlano
CFO
The Aspen Group Inc.
San Francisco
If I were a non-CPA CFO defendant in litigation involving a financial restatement due to accounting errors, I would blame it on the trained accountants: "They told me it was in accordance with GAAP. How was I supposed to know it wasn't?" I'm not sure what the jury would do with that, but it seems to me that a non-CPA CFO would be held to a lower standard of care than a CFO with CPA credentials.
Raymond J. Land, CPA
Senior Vice President and CFO
Genencor International Inc.
Palo Alto, California
Disagreement over the Options Debate
Your August cover story ("Who Rules Accounting?") presented a one-sided and misleading account of the current debate over expensing employee stock options.
The reporter failed to mention that expensing could destroy many broad-based employee stock option plans that grant stock options to rank-and-file workers and management. We believe these plans encourage innovation and hard work, which has led to increased productivity and employee ownership, especially in the high-tech sector.
No one has suggested that granting stock options to rank-and-file workers is responsible for the accounting frauds and other corporate scandals that have led to the Financial Accounting Standards Board's reconsideration of this issue. Yet, if FASB decides to expense employee stock options, these beneficial programs could be harmed. FASB has adamantly refused to consider these factors in its deliberations.
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