I just read this article in cfo.com about how the Big 4 accounting firms were reinterpreting the cash flow standard without oversight. The lack of clarity in Financial Accounting Standard No. 95, Statement of Cash Flows, has allowed the Big Four accounting firms, “with no regulatory authority, oversight, or due process,” to unilaterally reinterpret the standard, creating confusion and requiring companies to modify or restate financial statements.

In February 2005 when PricewaterhouseCoopers changed the accounting treatment for Auction Rate Securities (ARS) without any due process and without the opportunity for feedback on the possible impact of the change. The other three major accounting firms followed suit.A broad range of companies were required by their external auditor to modify current financial statements and to restate prior financial statements.
Then in March 2006, PwC again issued a document “applying the same narrow logic” they used on ARS to Variable Rate Demand Notes (VRDN). “The accountant’s advisory said that VRDN no longer qualified as a cash equivalent on the balance sheet even though these investment vehicles did not change in character and were always considered as a cash equivalent based on generally accepted principles. In both cases the other 3 firms took the same action at the same time.
So does this mean that the FASB( for non accounting background people FASB stands for Financial Accounting Standarard Board) ;the accounting standard setting board as we know of, is being replaced by the Big 4. If these accounting firms become the standard setters, the standards will be set to benefit these firms. If that happens there will be another period of accounting frauds and we will need another SOX.
This brings me to another question, how can accounting firms change the interpretations of the GAAP. Shouldnt there be any action against these firms? Who is stopping these firms from doing the same for other principles? So now do we have to relearn the principles?