washingtonpost.com  > Business > Metro Business

Quick Quotes

Page 4 of 4  < Back  

Law Makes Company Account for Past Sins

BearingPoint posted a $11.9 million profit in its most recent quarter, but sales to the government have exceeded commercial revenue, a figure that McGeary said he will closely follow in the months ahead.

In the past several weeks, to introduce himself and answer questions about the business, McGeary has been on a worldwide tour, meeting with employees and clients in 30 cities in the United States, Europe, Asia and Australia. All the while, staff members in the Virginia headquarters are meeting with auditors and each other to move ahead with the internal-control evaluation.

Sarbanes-Oxley

Congress passed the act in the summer of 2002, after financial scandals at Enron Corp. and WorldCom Inc. drove the companies into Chapter 11 bankruptcy protection and cost investors billions of dollars. The law, among other things:

• Requires chief executives and chief financial officers to certify the accuracy of their companies' financial results.

• Limits the type of work independent auditors can perform for clients.

• Increases the criminal penalties for destroying or tampering with documents.

• Bars companies from awarding top executives preferential loan deals.

Plenty of Problems

In recent months, several Washington area companies have disclosed problems with their accounting controls.

BearingPoint Inc., MCLEAN

Told investors in December that it may not meet the deadline for filing its year-end financial statement because auditors had detected possible weaknesses in its financial controls.

CompuDyne Corp., Annapolis

Announced Feb. 23 that it would delay release of its financial results for 45 days to complete as much work as possible on reviews of its internal controls.

Fannie Mae, Washington

Outside auditors last year cited "strong indicators of material weaknesses" in internal controls at the mortgage giant, which may be forced to restate earnings by as much as $9 billion because regulators said it had misapplied accounting policies.

Freddie Mac, McLean

New auditors at the mortgage company found billions of dollars in accounting errors and control problems last year that the company is correcting and restating.

Mills Corp., Arlington

Disclosed Feb. 16 that it would restate earnings back to 2002 because of accounting problems that a company executive called "a byproduct of the Sarbanes-Oxley environment."

TalkAmerica Holdings Inc., Reston

Issued news release Feb. 16 saying it would delay announcing its fourth-quarter earnings and may have to restate its profit because outside auditors may have uncovered "material weaknesses" in the company's accounting controls.

SEC officials said such reviews could be the most important step the agency takes to restore the confidence of average investors in corporate financial statements.

"The act is working," SEC chief accountant Donald T. Nicolaisen said in an interview. "There are weaknesses in internal control systems. It's very helpful that the sunlight shine on them so they get fixed."

Nicolaisen said the more stringent reviews are uncovering the improper use of accounting policies, and other mistakes. He said that was a "very healthy consequence" of the legislation.

The SEC plans a conference April 13 to give companies a chance to complain about the costly, time-consuming reviews and suggest how to streamline the process. Last week, the SEC gave small companies and foreign businesses whose stock trades on U.S. exchanges one more year to meet the new requirements.

Many companies are struggling with the mandate. More than 580 companies revealed weaknesses or deficiencies in their internal controls last year, according to the newsletter Compliance Week. So far this year, more than a dozen other companies have disclosed similar problems, according to the San Francisco research firm Glass Lewis & Co. Nicolaisen said the whole picture would be clearer by late March, when the first round of companies with deadlines under the law issue their annual reports.

McGeary said he still does not know whether BearingPoint will meet its Sarbanes-Oxley requirements in time. Although the act has forced the firm to straighten its financial controls, he is not fully convinced that the breadth of the regulation is good for business.

"There are risk-cost ratios," he said. "I do believe there is value [in the requirement], but I think the pendulum has swung too far."


< Back  1 2 3 4

© 2005 The Washington Post Company