|Just read a very interesting article on reuters today. Essentially it discusses how post Enron corporate America is subjected to strict scrutiny, regulation committees, and laws in order to uncover any other financial wrongdoings. This has led to the numerous scandals and shakeups that have occurred recentely. However, interestingly enough, many European firms whose units are based in the US have been uncovering accounting scandals as well due to stricter US scrutiny. What experts are saying is that European firms may have similar scandals that have yet to surface due to a lack of transparency. I wonder if this will blow up in their faces as well ...
Europe's Skeletons Turn Up in American Closets
Tue July 1, 2003 04:53 PM ET
By Deepa Babington
NEW YORK (Reuters) - When a rapid succession of accounting scandals shook the U.S. markets last year, some in Europe wondered if a stricter financial system with better accounting rules had prevented similar problems from spreading across the Atlantic Ocean.
But in recent months, a growing list of European companies have found themselves entangled in accounting troubles, except the root of their woes has remained in the United States, usually from their units here.
Dutch retailer Ahold, for example, uncovered an $856 million accounting hole at its U.S. foodservice unit earlier this year. Earlier on Tuesday, the company disclosed another 73 million euros in accounting irregularities.
British construction equipment rental firm Ashtead Group Plc in March revealed accounting errors at its U.S. Sunbelt Rentals business and said past profits had been inflated by about 11.5 million pounds.
On Monday, French engineering company Alstom became the latest to join the list, disclosing that it would take a 51 million euro charge after understating losses on a railcar contract at its U.S. transport arm.
Accounting experts say the recurring theme is more than just a coincidence.
But they say the reason much of the accounting problems have cropped up in the U.S. isn't because Europe has fewer problems lurking in its books or businesses. Rather, analysts say the intense scrutiny on accounting issues and corporate governance in the U.S. after a spate of scandals last year prompted auditors and companies to pore over their books with a magnifying glass and bring many of the problems to light.
"If you don't look for something, you're not going to find it," said Jim Leisenring, a member of the International Accounting Standards Board, which is developing global accounting rules, and who is also a liaison with U.S. accounting rulemakers.
Leisenring says it is hard to compare corporate financial statements in the U.S. to those in Europe because of the varying standards, but points to the intense scrutiny of books in the U.S. by agencies like the U.S. Securities and Exchange Commission, among others.
WEB OF RULES
The post-Enron environment has further tightened oversight and resulted in tougher rules in the United States, which has provided additional layers of checks and controls and helped spot irregularities.
Though it varies from country to country, companies in Europe are not often subject to multiple regulatory bodies or a comprehensive legislation similar to the sweeping corporate reform law -- the Sarbanes-Oxley Act -- passed last year in the U.S.
"There isn't anything yet compelling companies to do this in Europe, other than their conscience," said Howard Silverstone, a forensic accountant at Kroll Inc., who worked at an accounting firm in the United Kingdom before moving to the United States.
The mood hanging over corporate America has also encouraged whistleblowers to speak up. The Sarbanes-Oxley law has also ordered the Labor Department to provide greater protection for whistleblowers.
Alstom, for example, discovered the irregularities related to its railcar contract after employees at its Hornell, New York unit wrote to the company alleging accounting improprieties.
"The chances are extremely remote that the accounting problems that are being uncovered are really more intent in U.S. companies than they are in their European counterparts," said Frank Goldstein, a securities lawyer with Sidley Austin Brown & Wood. "That (the U.S.) is just where they are looking."