Financial Reporting Issues

So, I have been writing about the importance of accounting software that can ensure compliance with accepted practices and regulations. Then, along comes Bernard Madoff, who’s allegedly able to circumvent compliance controls and implement a $50 billion Ponzi scheme.

It certainly validates the question of how effective any accounting software can be in ensuring accurate and above-board practices. Of course, it also adds fuel to the regulation fire that inevitably will heighten levels of control and reporting—and consequently the need for secure and sophisticated accounting solutions.

A Dec. 23 article in the Wall Street Journal frames the debate: “Questions about compliance practices at Bernard L. Madoff Investment Securities LLC are troubling many securities industry observers, as losses related to an alleged $50-billion Ponzi scheme associated with the firm’s investment advisor arm continue to impact a widening international circle of investors. ‘How could you have this massive scandal going on in a firm that’s adopted adequate procedures? That’s what compliance is all about,’ says James A. Fanto, a professor at Brooklyn Law School in New York and author of Broker-Dealer Law and Regulation.”

So, what are some lessons to be learned from all of this in the world of accounting solutions?

One, hire honest people. No accounting software, no matter how robust or well-configured, can function flawlessly if the people operating it—or their bosses—have crooked intentions. Just because you have excellent accounting system software doesn’t mean you’re totally protected. People still matter—a lot.

Two, the importance of adequate accounting software cannot be overstated. Notes the Wall Street Journal article, “…investigators issued a subpoena to David Friehling, a New City, N.Y., accountant who audited the Madoff firm’s financial statements, and are seeking documents related to the Madoff firm going back to Jan.1, 2000. Friehling has until Dec. 29 to fulfill the request.” Do you think for a moment that this accountant wants to be caught with his figurative “accounting software pants” down? Obviously, sophisticated, up-to-date accounting system software would aid his cause.

Three, when accounting practices and reports are challenged, how many people want to spend inordinate amounts of time trying to comply? The right accounting software can be a huge time-saver in many types of situations. In some cases, it can be a potential “livelihood-saver” as well.

You may have heard increasing discussion of international versus US accounting standards. Given proliferation of international trade, now coupled with an international financial crisis, it’s only logical that domestic and international accounting standards would invite side-by-side comparison.

The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) are holding round-table discussions to address “financial reporting issues highlighted by the global financial crisis…” (source: IASB Nov. 3 press release).

The release elaborates, “The round tables are intended to help the board identify any accounting issues that may require the urgent and immediate attention of the boards to improve financial reporting and help enhance investor confidence in financial markets.”

Even if you own a US company with no direct international ties, these discussions ultimately may impact your accounting software’s reporting requirements and standards.

I know. Many of you are asking, “I have plenty of time before this affects me, so why concern myself with it?”

Here’s why. There’s a perfect regulatory storm brewing in the accounting services sector. First, there’s the domestic quagmire created by the current financial crisis. Second, the ongoing comparison and contrasting of US and international accounting services standards will produce changes regardless of the present economy. Third, a new Administration and Congress will want to appear gung-ho about undoing harm created, in part, by the sub-prime mortgage mess.

And, you don’t think your accounting system software will be scrutinized? As the pendulum swings quickly toward more government oversight and regulation, no one is immune. By way of analogy, think airline security. No matter who you are or what you do, you can’t carry that unsealed bottle of water aboard.

Given these circumstances, make sure your accounting software is heavyweight enough to address any or all of these accounting services issues. And do it now, not when new regulations are being implemented—and you’re already behind the proverbial eight ball.

So, how do you know if your accounting system software—present or prospective—
is safe and sound? Start by asking the manufacturer for specifics of present and planned accounting software features to address today’s regulations and tomorrow’s changing accounting services landscape. Look for more than reassurance—look for substantive answers that demonstrate knowledge of, and ability to deal with, what’s coming regulation-wise.

And, if that lower-priced accounting software doesn’t quite seem to measure up, move up to more robust and scalable accounting solutions that can take care of your needs now and as you move forward.