Financial reporting at a crossroads

Institutions responsible for financial reporting in the capital markets are reeling from the fall-out of financial-reporting scandals of colossal proportions. Reports on the collapse of Enron, the bankruptcy of WorldCom, and a growing list of failures and near failures have exposed massive manipulations of financial reporting by management, inexplicable breakdowns in the independent audit process, astonishing revelations of holes in our financial-reporting standards and practices, and stunning lapses of corporate governance. In this environment, investors and the public have become increasingly skeptical about a system that seems to be out of control. Financial reporting is once again at a crossroads. High-profile failures were seen in the past and similar questions were encountered about the performance of the key players in our financial-reporting system. Clearly, however, the revelations that continue to unfold have had cataclysmic effects that changed the world's view of a system that were often touted as "the best in the world." So severe is the damage that the investing public can be expected, rightly so, to demand answers and meaningful reforms.