Utah accountants say they face more work and more risk now that the Securities and Exchange Commission has adopted rules requiring accounting firms to certify the publicly held companies they audit have sufficient internal controls in place to discover and eliminate fraud.
Under the new regulations approved this week, auditors will be forced to do a more thorough job examining companies for possible financial irregularities so that shareholders can be reassured the balance sheets and corporate income statements they read accurately reflect the company's financial condition.
“The question now is how much more are shareholders going to have to pay to get that additional assurance from auditors that Congress clearly wants?” said Troy Lewis, president of the Utah Association of Certified Public Accountants.
The SEC's action probably will increase the amount of time accountants spend examining and preparing for company audits, which could lead to higher fees and lower company earnings.
Passed unanimously by the SEC's five commissioners, the new regulations were required by the Sarbanes-Oxley Act, SEC spokesman John Heine said. Sarbanes-Oxley passed Congress last year in the wake of widespread financial scandals at companies such as Enron Corp., WorldCom and Qwest.
The new rules go into effect in June 2004 for companies with market capitalizations of $75 million or more, which means 15 of Utah's largest publicly held companies — names that include Zions Bancorporation, Questar, Novell and Myriad Genetics — will have their internal financial control systems come under scrutiny at that time. The rules go into effect for smaller companies in April 2005.
Financial controls are the checks and balances that companies put in place to track their cash, sales, contracts and other normal business activities. They are designed to ensure that a company's financial statements are properly prepared.
“They can be as complex as a sophisticated computer program that tracks costs or as simple as making sure that the same person who receives payments from customers is not the same one who deposits the company's funds in its bank account,” said Utah accountant and certified fraud examiner Alan Funk.
Until now, auditors never were required to provide shareholders feedback on the internal financial controls that a company kept in place. Instead they were required to certify that the financial statements they prepared accurately reflected the information that they were provided by a company's management.