The consistent inconsistency.

• Author: Kovar, Mike
• Position: MEMBERS SPEAK OUT

While the accounting profession tends to think of itself as one focused on the long term, its history of regulation and change disputes that notion. The rate, frequency and inconsistency of regulatory and standard changes indicate a reactionary focus to external events. Because of this frequently dramatic changing landscape, the skills needed for today's financial executives bear little resemblance to those needed 15 years ago, and perhaps this is the major reason for such high levels of turnover at the chief financial officer level.

Consider a few of the developments that have occurred over the last few decades and their impact on the profession: 1994 Derivatives. Orange County, Calif., lost $1.6 billion investing in leveraged derivatives and filed for Chapter 9, causing it to become the largest municipality in United States history to declare bankruptcy. No GAAP derivative transparency requirements existed at the time. FAS 133 Accounting for Derivative Instruments and Hedging Activities, issued in 2001, is widely considered one of the most complex standards ever written.

2001-02 Frauds. Enron Corp., the seventh-largest U.S. company in 2000, went bankrupt in 2001. Worldcom Inc. announced in 2002 that it had overstated income by $3.8 billion. Fraud does exist and auditors have not been successful in detecting it. In response, Congress passed the Sarbanes-Oxley Act of 2002.

2005 SEC Lease Accounting Clarification. Clarification by the U.S. Securities and Exchange Commission regarding FAS 13 resulted in hundreds of restatements. Companies and auditors can no longer take solace in a position they have successfully taken for years as the SEC clarification effectively blindsided current professional practice.

2006 and 2007 Fair Value. The Financial Accounting Standards Board announced its intention to record balance sheets at fair value with the passage of FAS 157 Fair Value Measurement and FAS 159 Fair Value Option. FAS 157 was the first true principles-based standard published by FASB.

Besides traditional accounting and reporting, today's financial executive needs to understand internal controls, derivatives and FAS 133 hedging requirements, while also preparing for fair value measurements. The only consistent thing about the profession is its inconsistent history and frequency in enacting change.

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