SEC: Bloodthirsty or Just Doing its Job?
At the core of a massive plan to scrutinize up to one fourth of the nation's public companies is a continuation of the SEC's role as financial watchdog. Determined to put a stop to what it sees as accounting abuses, particularly in the area of revenue recognition, this year the SEC will closely examine nearly four times the number of financial statements it normally studies.
The examination, which will begin in early April, will focus on adherence to new federal reporting standards for reporting revenue. New federal guidelines provide strict rules for revenue recognition. For example, one provision of Staff Accounting Bulletin No. 101 requires that companies wait to recognize revenue on a sale until the product is delivered and accepted by the customer.
Lynn Turner, SEC Chief Accountant, claims that investors lost over $100 billion in the past eight years, and he is convinced that abuses in reporting play a part in this loss. Typical abuses include situations wherein companies report revenue for sales that aren't finalized, or when revenue recognition is manipulated in order to meet Wall Street forecasts.
Other issues to be considered during the spring cleaning examinations, according to Robert Bayless, chief accountant of the SEC's corporation finance division, include the division-by-division breakdown of revenue within companies, and disclosures of credit risk, use of derivatives, and market risk.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.