Stock Market Today

Leech believes that if he had been with one of the largest audit firms or a major corporation, his views might have been listened to. In fact, the SEC does have a mechanism which can be used. But as outlined on the web, the process is available only to registrants and their auditors, not members of the general public, even when they happen to work at the Institute of Management Accountants.

Leech laments that these issues have dragged on over the years as other countries look to the U.S. for guidance. And as we now know, there have been many cases where individuals try to bring attention to issues that later become well known. Two painful lessons for the SEC were the Bernard Madoff and Allen Stanford cases and the warnings raised by Harry Markopolos and Leyla Basagoitia, respectively, that went unheeded because they didn’t fit into the SEC’s processes.

It is hard know how much the use of COSO 92 contributed to the financial crisis and whether the IMA’s proposal could have helped prevent it. But clearly the issues Leech raises are worthy of consideration, given the lack of financial and risk transparency at the heart of the crisis. Discounting the possibility that there is something to learn here seems unwise. Questions must be raised in looking at the accounting probnlems Lehman Brothers and Bank of America (BAC, Fortune 500): how exactly did auditors sign off on the firms’ risk controls processes and miss the off balance sheet maneuvers that caused so much financial pain?

Given all that we do know, the SEC clearly needs to create a process for allowing input from outside the company and auditor communities. No one group can claim to have a lock on the best ideas. To prevent another crisis of this magnitude, it seems like taking seriously the weaknesses in an 18 year old control framework as part of a law that has cost companies billions to implement would seem to be a good start