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February 8, 2023

Internal Control Zealots May Be Helpful in Preventing Accounting-related Reckonings

Lawyers. Gotta love 'em. They have many functions but when it comes to accounting and financial reporting, it's usually to sue the pants off those who make gross errors in these two areas. Maybe the company was stupid; maybe the company did something illegal. It doesn't matter. If some numbers are wrong and someone lost money, you can bet the farm they will be suing to get it back.

How can one deter the sharks? Well, a recent study of federal securities class-action filings suggests that staffing your accounting department with COSO fanatics might be a good start: 

Accounting-related cases during the first three quarters of 2012 represented 31 percent of filings, which is a nine percentage point decrease from the percentage of filings during the comparable period in 2011 (40 percent). Through the third quarter of 2012, the most common accounting-related allegations were inadequate internal controls and improper revenue recognition, which were cited in 63 percent and 26 percent of accounting-related cases, respectively.

So get wise to the teachings of internal controls. It's far more practical than resorting to Shakespearean tactics.

PwC Reports a Decrease in Securities Litigation [AT]

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