Accounting Shakeup: Time to Count on IT?

By Larry Barrett  |  Posted 2002-07-02 Print this article Print

Expenditures of public companies are getting closer scrutiny. When will there be accounting for information technology?

With $6 trillion of shareholder wealth wiped out since March 2000, and Xerox, WorldCom and Enron all in the middle of billion-dollar accounting scandals, public reporting on spending of all types is getting deeper scrutiny.

This will put more pressure on tracking all transactions within a company, to report to outsiders, and could include disclosing information technology expenditures, for which there is little public accounting.

"CIOs can't ignore the impact that Enron and Arthur Andersen will have on the way they will manage and operate their IT systems," says Diane Tunick Morello, vice president and research director at business research and consulting firm Gartner Inc. "Now there's even more pressure put on CIOs to increase access to data and uncover information hidden deep in their systems."

To date, the burden of cleaning up reporting practices of publicly traded companies has fallen to the Securities and Exchange Commission, and, to a lesser degree, to the self-policing New York Stock Exchange and Nasdaq market. The NYSE, for example, has considered requiring that the CEO of a listed company would certify every year that his company's information is accurate and complete.

To meet that kind of standard, a CEO would have to lean even more on the information systems in his company. That could mean delivering a more detailed account of that company's information technology spending as well. Traditionally, companies fold such spending into their general expenses category or, in rare and expensive cases, break them out as separate one-time charges. There is no requirement that companies break out their information system expenditures, although the SEC is looking hard at just about every aspect of financial reporting.

"We generally don't comment about movements afoot," says SEC spokesman John Heine. "All sorts of things are going on within the building. This is just one of the issues we're looking into."

The stakes are enormous. Information technology spending worldwide is expected to surge to more than $2 trillion in 2003, according to Strategic Planning Services/Spectrum Economics, an economic consulting firm in Palo Alto, Calif. By 2005, it will reach $2.6 trillion—a huge sum not required at present to be reported in much detail.

Senior Writer
Larry, of San Carlos, Calif., was a senior writer and editor at CNet, writing analysis, breaking news and opinion stories. He was technology reporter at the San Jose Business Journal from 1996-1997. He graduated with a B.A. from San Jose State University where he was also executive editor of the daily student newspaper.

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