Finding the GAAP in FCPA Enforcement: Challenges in Identifying the Impact of Alleged Bribery in Financial Statements

Mon May 13 16:24:38 EDT 2013
By Raymund Wong and Dr. Jerry Arnold

Since a ramp-up in enforcement actions over the past decade, the Securities and Exchange Commission (SEC) has settled an average of 10 Foreign Corrupt Practices Act (FCPA)-related cases on an annual basis from 2007-2012, with settlement amounts averaging just under $29 million. Previous research in this area has noted that the economic impact of FCPA enforcement actions can extend beyond the immediate settlement amounts. In this NERA paper, Senior Consultant Raymund Wong and Special Consultant Dr. Jerry Arnold point out that, even in FCPA enforcement actions in which the fines, penalties, and/or lost business can be substantial, there is not necessarily a restatement or asset impairment involved. The authors note that, despite pairing the illegality of the act of bribing a foreign official with accounting provisions in the FCPA, the financial statement impact of FCPA enforcement, to date, generally has focused on recognition of settlements with the SEC and/or Department of Justice as an expense recorded at the time of settlement. This paper explores the potential reasons for this potentially limited impact on financial statements.