From inside the profession, or even working closely besides it, it's sometimes hard to imagine that there's anyone who doesn't have at least a cursory understanding of what Sarbanes-Oxley meant for the profession, or why the debate over Section 404 continues years after its implementation.
The truth is, to even begin trying to offer up a cursory description of what the heck internal controls are all about, is usually more than enough to see the eyes of most audience members begin to glaze over.
That's part of the reason a recent report from San Francisco research firm Glass Lewis & Co. makes so much sense. The July 27 report, "Mum's the Word," examined auditor-turnover trends and focused on building a case for why both companies and auditors should reveal the reasons a company dismisses an auditor, or an auditor resigns from an engagement.
According to Glass Lewis, in 2005 more than 1,400 public companies changed their independent accounting firms, including 77 companies that changed auditors at least twice. And nearly three-quarters of the changes were by companies that did not provide a reason for making a switch. The report argues that the Securities and Exchange Commission would be doing investors a tremendous favor if it revised the current Form 8-K filing rules and required companies to disclose the specific reasons for auditor changes in all instances. And going a step further, former auditors should be required to tell investors whether they agree with the company's publicly disclosed reasons.
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