When a few corporate executives in handcuffs are taken on a "perp walk" into court with the television cameras humming, it does not go unnoticed in boardrooms across America.
The resulting "fear factor," coupled with new laws and regulations, is fostering more rigorous corporate bookkeeping.
Yet despite the continued drumbeat of indictments and investigations of financial fraud, some experts are questioning how deep and long-lasting the trend toward cleaner accounting practices in corporate America will be. Already, skeptics see some troubling signs:
This week media giant AOL Time Warner said this week it will restate sales by $190 million a stunner, since many on Wall Street hoped WorldCom-style surprises were largely over. To date, 911 out of 940 major companies have certified that their books are accurate, as regulators required earlier this year.
Meanwhile, the naming of a chairman to head a new accounting oversight board, due by Oct. 28, has become enmeshed in a Washington flap. Securities and Exchange Commission (SEC) Chairman Harvey Pitt at one point favored the appointment of John Biggs, a retired pension-fund manager who supports controversial reforms. Accounting-industry lobbyists have been pressuring the Bush administration and Congress to block his appointment.
Some Republicans are pushing for the nominee to be William Webster, a former director of the CIA and FBI.
A separate concern is SEC funding. The Bush administration is asking for $200 million less in the agency's enforcement budget than was called for in a new law to fight corporate fraud.
Moreover, some proposals that arose in the wake of Enron remain to be decided by federal and industry regulators. Those include tougher accounting for stock options and forcing accounting firms doing auditing to divest their consulting arms.
How these issues play out will influence the regulatory climate corporations will face for some years to come.
"The environment has changed dramatically," says Rebecca McEnally, an accounting expert at the Association for Investment Management and Research. "Anything that brings daylight to [accounting] practices out there, ... has to be good."
Congress has gotten into the reform act with the Sarbanes-Oxley Act, which passed with broad bipartisan support in July. To comply with the bill, the SEC last week issued four rules for comment that, when finalized, will be binding on companies:
File in their annual reports an account of internal control structures.
Disclose if they have a code of ethics for their top brass, and if not, explain why.
Note the number and names of "financial experts" on the audit committee of their boards. These must be independent of management.
Face criminal charges if they strong-arm or mislead corporate auditors into improperly altering financial records.
Mr. Pitt promised last week that the Public Company Accounting Oversight Board will be appointed by the Oct. 28 deadline set by the Sarbanes-Oxley Act. This new body will oversee accountants and their professional organization, the American Institute of Certified Public Accountants. But the naming of a chairman has been hit by Washington politics.
"It's a political mess," says Elizabeth Fender, director of corporate governance at TIAA-CREF.
Peter Peterson, chairman of The Blackstone Group, calls Biggs "an absolutely outstanding individual. I can't think of a better guy to do the job." Peterson serves on the Commission on Public Trust and Private Enterprise set up by the Conference Board in New York with Biggs.
If Biggs is not appointed, it will likely be seen as a signal that the Bush administration and powerful members of Congress want to defang the new regulatory board.
"Whether [the Sarbanes-Oxley law] is going to be a long-term fix is hard to know," says Paul Weinstein, an economist at the Progressive Policy Institute in Washington. "I'm not sure."
One lingering issue is whether companies should be made to list stock options granted to employees as an expense in their regular financial statements not just a footnote. This is being fought by many high-tech firms, which use options heavily.
Many companies have already decided to "expense" options. Ms. McEnally's organization has been urging options expensing for a decade, holding that it would make financial statements more accurate.
Another issue is whether accounting firms should be required to divest their consulting arms. Critics argue that if an accounting firm makes three times as much in consulting fees as they sometimes do as they make in auditing the same company's books, they may be reluctant to insist on proper accounting practices. "They don't want to bite the hand that feeds them," says Peterson.