The biggest beneficiaries of the new rules are accounting firms, which will reap increases of as much as a 50 percent in fees for all of the internal control work, accounting experts said.
But working under such tight deadlines and enormous pressure has sometimes soured relationships between auditors and their clients. Chief financial officers and other corporate managers report widespread complaints about resource-strapped auditors who may not have enough time to get the work done, or who may be altering the kind of information they seek from clients in midstream, said Dennis R. Beresford, a University of Georgia accounting professor.
Beresford said it would not surprise him if the number of auditors fired next year increases because of the tensions induced by the control work.
Meanwhile, regulators and investor groups are rushing to educate the public about the issues, so that the stock market does not overreact when large numbers of companies begin disclosing problems in vouching for their controls. Last month, 63 companies publicly revealed problems with financial controls, according to the newsletter Compliance Week. That number is expected to increase over the next several weeks as companies voluntarily notify investors and the Securities and Exchange Commission of problems.
SEC officials emphasize that disclosing problems with controls may mean that companies simply failed to fully document their procedures -- not necessarily that firms have inaccurately reported earnings or other key financial measures.
"The ultimate goal of the . . . requirements is to make sure that the right information is getting into the financial statements," SEC Commissioner Cynthia A. Glassman said.
Accounting experts say that financial control breakdowns can signal broader troubles for a company or its management team. In recent years, the SEC has charged Rite Aid Corp., WorldCom Inc., and Xerox Corp. with having faulty controls, after multimillion-dollar accounting blowups hit all three companies.
Donald T. Nicolaisen, chief accountant at the SEC, told The Washington Post earlier this month that the agency would not grant a broad-based reprieve from the deadline for large companies. But, he said, the agency would monitor the situation closely in the weeks to come and that it might give smaller firms, with fewer resources, a short break from the deadline. Such a decision may not come until after Thanksgiving at the earliest.
