So, what have you done for me lately? Washington (notably Congress) has set up new requirements for corporate CEOs as well as corporate boards. We've seen that with the Sarbanes-OxleyAct. The same people have also created the Public Company Accounting Oversight Board, which imposes certain obligations on auditors. But, nowhere do we pick up any other regulations for increasing auditor ethics--at least, until we head west to California which has enacted a plethora of strict accounting reforms.
Now, before you get in an uproar about my not talking about stocks, bonds, financial services, financial planning, and the like, and leaving the accounting scandals and SEC business to my knowledgeable colleagues, let's consider this piece of information a little more carefully.
Starting this past January 1st, public accountants who are licensed in California now have a higher standard to meet under three new state laws, as follows:
- There's been enacted a one-year cooling off period before an accountant who has been responsible for the audit of a public company can take a job as the financial officer of that same company.
- Auditors must now keep records that will show an outsider how the work was performed as well as identifying the party doing the work. These records, it should be added, must be retained for seven years. It goes without saying--but I'll say it anyway--that the California law does raise a presumption that if the records are not there, then the work was not considered done.
- There must be a majority of public members on the state board that is responsible for licensing public accountants, as well as disciplining them, thereby putting to an end this period of self-regulation by accountants. It also obligates accountants to go to the state Board of Accountancy whenever a company restates its earnings, thereby giving the board the opportunity to investigate whether any audit previously taken had violated certain standards.
In effect, California has created a no-revolving-door standard on licensed public accountants. Look, consumers are being protected. That's the name of the game. Actually, New York may be only a few steps behind in that regard. That state has its Martin Act, which permits the state attorney general to take punitive action against those who publish misstatements on stock values.So, what's this all say? Certainly, it appears that California is one place in the vanguard of accounting reform. It has established the lead on auditor conduct, even more so than what is coming out of Washington. Perhaps other states, and even Washington, should take note.
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