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) -- Sweeping reforms of the accounting industry are being discussed, but whether they will survive industry lobbying efforts remains to be seen.

Ask the Financial Accounting Standards Board (FASB), which helps define the rules about what companies report, or the Public Company Accounting Oversight Board (PCAOB), which keeps an eye on the auditors, about any particular trouble area and they'll point to a new rule or a speech as evidence they are on the case.

Given recent history, however, it is hard to take them seriously.

Seven years after


imploded in 2001 as a result of off balance sheet maneuvering, similar tricks played a big role in the 2008 collapse of

Lehman Brothers

and the need for a massive government bailout of


(C) - Get Citigroup Inc. Report

and other large banks.

More damning than the fact that those companies were not stopped by regulators from hiding their debts is that it isn't clear they did anything illegal.

FASB has since adopted new guidelines and rules, though it would probably be unwise to bet companies won't find ways around them.

"The FASB has not been perfect by any means," says Jeff Mahoney, a former counsel to the Chairman of the FASB. However, he adds, "it's a lot easier to criticize the rules than make them." Mahoney, now general counsel for corporate governance group the Council of Institutional Investors (CII) stresses that his opinions are his own and do not necessarily represent the views of the CII.

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Barbara Roper, director of investor protection for the Consumer Federation of America, is hoping for further changes in the state of the accounting. "Like so many things, it's better than it was and it's not good enough," she says of the post-crisis accounting reforms put in place so far.

It would help if the auditors had an interest in policing companies' efforts to play fast and loose with the rules, but clearly they do not since those companies are their clients.

"I'm a client. I pay you to give me an opinion, and if you tell me I'm ugly--guess what?--I don't want you back next year," says Joe Carcello, a University of Tennessee professor and an advisor to the PCAOB.

While the PCAOB has proposals on the table to address this conflict, Carcello expects them to meet with fierce resistance from the industry, and he isn't sure who will prevail.

Carcello says he is more optimistic about other proposals that will require auditors' reports to become more substantive.

"The current audit report is essentially devoid of information content," he says.

Reform aside, there is the question of whether any accountants will face consequences for any of their actions leading up to the 2008 crisis. Ernst & Young succeeded in dismissing several claims against it made by Lehman Brothers investors who sued both Lehman and E&Y, but one claim was allowed to proceed. E&Y is also still battling civil fraud charges brought by the New York Attorney General's Office last year when it was run by Andrew Cuomo, now New York's governor.

Another big area of concern, Carcello says, is the large number of companies being audited outside the U.S. The issue applies both to foreign companies listed on U.S. exchanges and companies headquartered in the U.S. that get an increasing amount of their revenues abroad.

Auditors located in the European Union, China and Hong Kong do not allow PCAOB inspections, and Carcello believes agreements between those countries and the U.S. are a long way off. This state of affairs removes much of the efficacy of the Sarbanes Oxley Act, passed by Congress in 2002 to address issues highlighted by Enron,


and other turn of the century corporate disasters.

"The lynchpin of the Sarbanes Oxley Act as it relates to oversight of the accounting profession is the

PCAOB's ability inspect the quality of work that's being performed," Carcello says. "Right now U.S. investors have no protection as it relates to any audit work that's being done by auditors located in those countries. That's a big challenge."


Written by Dan Freed in New York


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