Yesterday federal authorities charged two former Kmart executives with committing an accounting fraud that resulted in the bankrupt retailer overstating earnings by $42 million.Separately, the Securities and Exchange Commission (SEC) filed civil and criminal complaints against Enio Montini, a former senior vice president and general manager, and Joseph Hofmeister, a former divisional vice president. According to the SEC, Mr. Montini and Mr. Hofmeister conspired to mislead Kmart accountants about the true nature of a $42 million payment from American Greetings Corp., a Kmart vendor.

A federal grand jury in Denver has indicted four former executives of Qwest Communications for fraud.

Last week Ernst & Young weighed in on the issue of expensing stock options and in the process upset its high-technology clients. The Big Four accounting firm reversed its previous opinion, notifying the Financial Accounting Standards Board (FASB) that it now believes employee stock options should be expensed. Ernst & Young audits 46 of Silicon Valley’s 150 largest companies. High-technology firms, which routinely use employee stock options, have been vocal in their opposition to expensing the options. Until now, Ernst & Young had agreed with its Silicon Valley clients.

Charles Niemeier, the interim chairman of the Public Company Accounting Oversight Board, responded to an article in Wednesday’s Financial Times that the Board was falling behind its schedule to fully review the Big Four accounting firms by the end of 2003."To fall behind, you have to have something to fall behind from ....

To increase the investment community’s participation in the accounting standard setting process, the Financial Accounting Standards Board (FASB) has established a User Advisory Council. The FASB will host its first meeting of the User Advisory Council on Thursday, February 13, at the Grand Hyatt in New York City.The Council will assist the FASB in raising awareness of how investors and investment professionals, equity and credit analysts and rating agencies use financial information.

What was really behind all of the financial restatements last year? What kinds of trends can be seen in the causes of these financial restatements?

It took several decades and a crisis of unprecedented proportions to bring the issues to a head, but today's accountants have only weeks to come to grips with the new rules on accounting for special purpose entities (SPEs) like the ones that contributed to Enron's collapse.

Accountants and retired audit partners looking for seats on boards of directors may be disappointed to hear the Securities and Exchange Commission has expanded its proposed definition of "financial expert." This definition has proven to be one the most controversial aspects of the Sarbanes-Oxley Act.Under the Sarbanes-Oxley Act, companies are required to disclose whether or not they have a "financial expert" on the audit committee of their board of directors.

The Conference Board's power-packed Commission on Public Trust and Private Enterprises released a report that adds to the pressures facing audit firms today. The report studied causes of declining public and investor trust and recommended that best practices include rotation of audit firms in some circumstances and relinquishing of certain types of tax work by audit firms.