The New Accounting Environment: Companies Face a Paradigm Shift in How They Conduct Business

EXECUTIVE SUMMARY * NEW ACCOUNTING REGULATIONS BROUGHT ABOUT by Sarbanes-Oxley and SAS no. 99 will force many companies to change how they do business. Compliance with these and other rule changes will expand the burden of corporate CPAs. * ONE NEW REGULATION THAT WILL AFFECT ALL public companies is the proposed NYSE requirement for an internal audit function. At a time of economic downturn, audits are going to cost more and companies will have to bear the expense of putting in new programs to be in compliance with government and stock exchange rules. * THE CHANGES IN ACCOUNTING AND AUDITING RULES will reach beyond public companies. More than just a piece of legislation, Sarbanes-Oxley is a whole new way of thinking about corporate governance. Banks and insurance companies also will insist on a higher standard for businesses-even for privately held entities. * ANOTHER PROBLEM BOTH PUBLIC AND PRIVATE companies face is the possibility individual states will adopt parts of Sarbanes-Oxley and make them apply to all companies doing business in that state. Such potentially contradictory rules could cause havoc with the world economy. * BUSINESSES FACE A NUMBER OF OTHER CHANGES including the setting up of fraud hot lines, establishing a new relationship with their external auditors and training employees to comply with the requirements of Sarbanes-Oxley and SAS no. 99. CPAs will have an evolving role as the PCAOB takes on its new responsibilities. Keeping up with the changes the new accounting regulations demand can add complexity and hours to the already full schedules of corporate financial executives. This year CPAs in business and industry have had to find the time to know--and do--more. The Sarbanes-Oxley Act of 2002 and SAS no. 99, Consideration of Fraud in a Financial Statement Audit, are forcing companies to bring in additional personnel to handle the compliance workload. Some of the new employees will help companies keep up with the tidal wave of changes from federal and state regulators and agencies. Others will bring newly required expertise--in internal audit, for example. The bottom line impact is broad, and few companies will be able to escape what experts call a paradigm shift in the way they conduct business. Here's what CPAs can expect and what they can do about it. NEW RESPONSIBILITIES CPAs are responsible for shepherding many new rules and regulations through their companies. In this role they are * Establishing new internal controls and methods of evaluating those controls. * Developing internal audit functions where needed and creating new relationships with external auditors and boards of directors' audit committees. * Putting together anonymous hot lines for employees to report fraud. Most important, CPAs are operating without a full interpretation of the new regulations and under threat of serious consequences for noncompliance. Debra R. Hopkins, CPA, CIA, director of CPA review courses and professor of accounting at Northern Illinois University in DeKalb, addresses all of these issues head-on in a talk she gives titled "Spotlight on Corporate Governance: The Highwire Balancing Act. " Hopkins often gives her training through the Center for Corporate Financial Leadership in Chicago, which serves 40,000 CPAs in business and industry in eight midwestern states. CCFL is one of many organizations scrambling to help CPAs adapt to the new accounting model brought about by Sarbanes-Oxley. Some of the others are listed in exhibit 1, below. Exhibit 1: Online Compliance Resources American Institute of Certified Public Accountants, www.aicpa. org. Association of Certified Fraud Examiners, www.cfenet. com. Center for Corporate Financial Leadership, www.ccflinfo. org. Financial Executives International, www.fei. org. Information Systems Audit and Control Association, www. …