The future of corporate reporting: from the top.

• Author: Heffes, Ellen M.
• Position: Financial Reporting

Eugene D. O'Kelly, Chairman and CEO, KPMG LLP

Eugene D. O'Kelly took the helm as Chairman and CEO of KPMG LLP last April. A tough time to step into the top spot at a major accounting firm? In an interview with Financial Executive's Managing Editor Ellen M. Heffes, O'Kelly said he doesn't think his job is any tougher than that of any other CEO of a $4 billion-plus company. "The CEO job is always challenging, and I know every CEO in America will tell you it's probably the toughest time to be in this job," he says. Yet, he is apparently enjoying the challenge, saying his background and experience have prepared him well. Moreover, he's confident his firm is moving quickly to adapt to the future.

EH: The flurry of accounting and corporate reporting scandals seem to have cooled some, but still much is happening in Washington and more. What is your thinking -- are there "real" problems with the U.S. financial reporting model?

EO: What has happened is that the reporting model has become so complex and voluminous that the utility of financial reporting to other than extremely sophisticated investors has become irrelevant; the average investor has very little likelihood of really gaining a true appreciation for all the information that has been put together to satisfy the new reporting requirements.

At this time of year, every company is in the process of preparing its annual report -- which is going to be fairly voluminous for 2002. [With] the new disclosure requirements, there is clearly a different standard of materiality that regulators, shareholders and the investing public have imposed on them with regard to what is disclosed in their financial reports.

In addition, there is the process itself -- by which information is gathered, analyzed and acted upon within the company. That process has been significantly improved to the point now where it is comprehensive [and] consistent with the requirements. So, I believe that a great deal of improvement has been made.

EH: It's been quite a year, 2002: the loss in investor confidence, the stock market's continued downward spiral, and the overall changes since Enron, over a year ago. As we begin 2003, what do you expect will happen, in terms of legislation and regulation? Will Sarbanes-Oxley get the job done?

EO: I view Sarbanes-Oxley as directionally correct, and I believe the marketplace deserves some time before anything more is proposed. The implementation of the provisions of Sarbanes-Oxley are being circulated by the SEC as we speak, so as a consequence [it] still remains to be seen, how well it [the Act] gets implemented. Like any piece of legislation, it is far from perfect. I think what the marketplace would say right now is, "Give us a chance to absorb it, and don't go further than this at this point. Give us a chance to implement what's there."

EH: What are you -- at KPMG -- doing differently in light of the new, changed environment?

EO: As a firm, we are obviously trying to be responsive to the current environment. investors want a higher level of confidence today about the audit process, and that translates into ensuring that there's robustness.

We've responded in two ways: first, we have raised the importance of risk [management] throughout our organization. We've had a strong system, but, like anything else, it can be improved. Structurally, one way we've...