August 16 is CEO come clean or "Chicken Little Day" The End is Nearer!

[elucidator]

So Mr. Pitt, that tireless protector of the uptrodden, has declared that CEO’s must sign off on thier annual report for this year and last OR explain why not. Some ( a very few, at this point) have leaped to the challenge and done so at once.

Some already have a built-in pass, as they had Aurthur Anderson as thier auditers, so they can claim they have to wait for a different, unindictable accounting firm to sign off.

Some, I suspect, will develop Born Again Family Man syndrome, and scurry away from the kitchen light to spend more time with thier money. Thier honey. The family, you know, the important stuff. The “fall guy” can claim he hasn’t been CEO long enough, blah blah yadda blah blah yadda, and gets a pass as well.

But some are simply going to have to bite the bulletin. We are going to know one hell of a lot more about what’s really going in in Corporate America (aka the Towers of Mammon). Going to flush the shitbirds out of the bushes (so to speak).

Those who are somewhat anxiously touting the Few-Bad-Apples line suggest that not much will happen, the big shoes have already dropped, etc.

Those of us (yours truly!) who suspect that the Enron game was simply to delicious too be kept under wraps, that slash and burn capitalism has been rampant, have a rather less optimistic expectation. Debacle. Godderdamnerung DOOOOOOOM!

Opting out because A.A. is your accountant will be rather like bringing a leper to the prom, investor wise. And, of course, those who can sign the Pledge with a straight face will be very happy campers indeed. And armies of trial lawyers will be uncorking the champagne. Whole masses of the investment community will abandon Viagra for chloral hydrate.

Gaze deeply into the crystal bull, SDMBers, and tell the future.

Awww. don’t worry, “Kenny-Boy” Leavenworth is nice this time of year, it’s very…Kansas. Just think of it as a very secure gated community!

[Scylla]

I thought it was the 14th. The 16th is my birthday, so I hope it’s not then.

I’m ambivalent about this particular happening. On the one side of the coin, we really do need to do something to restore confidence, on the other side, it seems like a pure act of faith.

Accounting issues are complex. In even a moderately sized corporation you are looking at millions of transactions that occur, and have to be accounted for. No one man can do it, or vouch for its accuracy.

A CEO isn’t supposed to be an auditor or a CPA. They’re supposed to run the company.

We already have a set of rules and responsibilities in place that asre supposed to ensure accountability and transparency. Responsibility is supposed to have been defined among those who are qualified and have the resources to vouch for the statements.

That they have failed, and that the current system has failed most assuredly needs to be addressed. However, this new idea seems lacking to me.

Just because those who were supposed to have been responsible and able weren’t, doesn’t mean that we should transfer that responsibility to a party that can’t be.

I picture the CEO of Tasty Baking Co, Carl Watts who spends his time worrying about cupcakes and distribution suddenly having to take responsibility from his Treasurer, CFO, and auditors, and I’m not sure that’s a good thing.

He’s going to look at this stuff, and ask them if it’s right. When they tell him it is, he’ll sign it. But, he’s not going to know. He’s not in a position to know.

And, old car is now going to be held responsible for potential sins that he has no knowledge of, nor is qualified to have knowledge of.

The responsibility is supposed to be with the CFO, and auditors. That’s how it was designed. That’s their job.

To me, it seems as if an auto mechanic has done a poor job on a car, so we’re going to make the Sales manager pick up a wrench.

Not the best idea.

[gazpacho]

Having just read the letters signed that have ben received so far. I am not sure what has changed. Don’t similar statements go out every quarter with the quarterly results? You to can look. So far 9 CEOs have responded.

http://www.sec.gov/rules/extra/ceocfo.htm

Either the letters were not in compliance, which I don’t think has yet been determined, or this is not much but a public statement that the books are not cooked.

[xenophon41]

Here’s the sample form for the statement which is being required of CEO’s and CFO’s. Here’s the SEC’s FAQ on Order 4-460 (which now requires the statement).

I don’t see anything here that will cause any sort of mass revelation of malfea-ance in corporate America. Note that the officers aren’t being told to swear that their company’s statements are unalterably accurate, merely that, to the best of their knowledge, the statements contain no false statements of material fact or relevant ommissions of same.

The due date for this statement is not actually August 14. Rather, the statement must accompany the next 10-Q or 10-K form the company is required to file on or after August 14 (and this may be extended in accordance with rule 12b-25). So there’s not going to be any sudden flood of filings.

In addition, I can find no specific penalties listed for failing to comply with this order. Not that I think many of the CEO/CFO’s of the 450 or so companies named will decide not to comply. That would be pretty much begging for a full-scale investigation.

I predict nothing more than a much higher than average number of amendments/adjustments, which everyone should’ve expected in the wake of Enron/Worldcom/Qwest/Adelphia et al, ad nauseum anyway.

[Maeglin]

The responsibility is supposed to be with the CFO, and auditors. That’s how it was designed. That’s their job.

I think that is a little naive, Scylla. It was there job.

From The Economist, July 6.

Last year, Peter McLean, who leads the CFO practice at Spencer Stuart, a firm of headhunters, looked at the qualifications of CFOs at Fortune 500 companies. He found that only 20% were Certified Public Accountants; 35% had MBAs, and 5% had both qualifications.

It doesn’t even look like CFO’s know how to audit their own companies.

The Economist further reports:

In the 1990s, the role of the CFO moved away from financial reporting, in ways that made a broad business training more useful. CFOs became strategic planners, playing a big part in mergers; taking charge of information technology; devising complex financial instruments; and above all, managing relations with investors. “Star quality is the key to raising money,” reflects Steven Hall of Pearl Meyer, a pay consultancy. “It’s even more essential now.”

Lynn Turner, a former chief accountant at the SEC, is aghast at the ignorance of basic accounting principles in many companies. He describes how he was telephoned by a company in Texas that was fighting the SEC and its auditors. “The [company’s] attorney told me that the CFO had no training in accountancy—he was an operations guy,” recalls Mr Turner. “I said, ‘then they need to call God, not me’.”

As for the supposed separation between the CEO and the CFO in order to ensure transparency and fairness:

Even where companies do not do naughty things to their earnings, the relationship between chief executive and CFO has grown closer. Chief executives clearly want a CFO who will be part of the team. If he isn’t, he goes. A survey by CFO magazine in 1999 found that 39% of chief executives had fired their last CFO, and 75% had hired the current incumbent—40% of them within the previous three years.

While this in and of itself does not represent anything untoward, it appears to be one plank of a much greater problem.

For those who have Economist subscriptions and would like to read the entire article, you may find it here. If the mods find my quotations to be too lengthy, I hope they duly truncate them.

[december]

Having signed off on accounting reports as actuary, I am glad to see greater requirement for top management responsibility. In insurance, it’s not uncommon for a CEO to ask the actuary to support a reserve opinion different from what the actuary would like to choose. Maybe having some skin in the game will deter CEOs from some of this finagling.

Maeglin
“Last year, Peter McLean, who leads the CFO practice at Spencer Stuart, a firm of headhunters, looked at the qualifications of CFOs at Fortune 500 companies. He found that only 20% were Certified Public Accountants; 35% had MBAs, and 5% had both qualifications.”

I see no problem. In order to get a CPA, one needs several years of experience as a public accountant. However, many fine CFO’s have spent their entire careers as a company accountant, so they cannot be a CPA.

The MBA degree is useful for management, especially for managing a profit center. It’s not necessarily important for corporate accounting.