Major changes in rules and regulations
Since the Enron collapsed an array of new laws and regulations has been adopted to tighten corporate oversight. US offices were the first one to come out and implement the policies. Almost all of the firms had their headquarters in the US and they replicated their headquarters policies to a good extend in other offices around the world. Also other governments and regulatory bodies around the world came out with their country specific rules and regulations which are quite similar to the rules in the US. So these two factors ensured that rules which are followed in US are followed at the other places also. Policies might differ in their length and breadth at different places due to cultural, country specific factors and the size of member firms but conceptually they are pretty much the same. The main change being the Sarbanes-Oxley Act, which did two things. First, it created the Public Company Accounting Oversight Board (PCAOB), which is in charge of registering and inspecting public accounting firms, and for adopting and modifying audit standards. Second, the PCAOB has the power to bring enforcement actions, which, is concurrent with the SEC’s [Securities and Exchange Commission] enforcement powers. Second, the Act does what critics would call a micromanaging of corporate governance by establishing some very specific requirements of corporations. SOX require the CEO and CFO to sign all the financial statements, to have an understanding of the workings of the companies that they head and to affirm the fact that they don’t know of any fraud being committed by the company. The GAO (Government Accounting Office) implemented laws revolving around four major areas corporate governance, independent audit of financial statements, oversight of the accounting profession, and accounting and financial reporting issues. The AICPA requires auditors to document all decisions or judgments that are of a significant degree. SAS outlines what fraud is, reaffirms the auditor’s responsibility to look for fraud, and reaffirms the necessity to gather all information for an audit. These events have also allowed the world of academia to make many influential changes to curriculums, without adding or dropping classes. These changes include a new emphasis on accounting ethics and on special purpose entities.
Impact on big four accounting firms - Deloitte, KPMG, PWC and E&Y The remaining big four accounting firms (Deloitte, KPMG, PWC and E&Y) decided to break all ties with Andersen. The biggest impact was the splitting of the consulting business for the entire major accounting firms. And they have to contract their business and sell of their consulting business because by that time the consulting business The big chunk of that business was turning out to be ERP type of technology which was then prohibited under the guidelines of SOX. Deloitte was an exception as the ownership structure in place within Deloitte made it quite complicated to extract the consulting business out. IBM purchased PWC consulting business for $3.5bn which is about 0.65 or 0.7 of overall revenue. The interesting part is it that only 18 months earlier HP has made bid to PWC consulting business for $13.5 bn. At that time the whole Enron thing coincided with the whole dotcom bust. So because of dotcom bust lot of major industries were collapsing lot of major consolidation were happening especially e.g. in the telecom sector. In the dotcom era a lot of new companies were growing and they buying consulting services esp in the telecom side because they want to build out all the instruments and infrastructure. In other developed countries like Canada something very similar to PCAOB was implemented. Because of this auditing firms are no longer self regulated. In Canada for example, previously they were self regulated by the charter or the institute of charter accountants and now they become regulated by the government in terms of our...
Please join StudyMode to read the full document