Last week, I interviewed Michael Crooch from the financial accounting Standards Board.

During our conversation over coffee, he revealed how much Sarbanes-Oxley had transformed the accounting scene and conceded that it provided no rock-solid guarantees against another massive fraud.

A former partner in the now-defunct Arthur Andersen, Crooch told me that he thought closing the firm down was a big mistake.

And as for the convergence between US and international accounting standards, his answers would suggest it's still up in the air.

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SOX FIRST: What impact has Sarbanes-Oxley had on the accounting scene?
CROOCH: It's had a significant impact. It has caused significantly more work for auditors because of the requirements for internal
controls. The whole environment including Sarbanes-Oxley has caused accountants to be more careful in their work. Things happened that shouldn't have happened. People were using accounting in ways that it was not intended for and that put a lot of pressure on the system to try to fix it. It changed the environment some because the interaction between management and the auditors became a little bit more formal from what it used to be. Indirectly, perhaps the requests that we at the FASB receive for specific guidance would have gone up as a result of the fact that people want to have comfort that they have exactly the right answer in a particular circumstance when a person is making a professional judgement that they might have been made before the problems with Enron and WorldCom.The demise of Arthur Andersen caused the firms to realise they needed to be more careful, they became more conservative.
SOX FIRST: On the question of Arthur Andersen, what's your take on what happened?
CROOCH: I felt a lot of people were punished by the actions of a few. It was wrong in my view to eliminate that firm. The vast majority of the firm was a high quality organisation with people I held in very high respect. I thought it was the wrong decision.
SOX FIRST: So have accountants learned their lessons from the demise of Andersen?
CROOCH: I can't tell you whether they have or not. I am a standard setter. I see them being more careful, more conservative. That's an impression I have. Whether or not it's true I can't tell you.
SOX FIRST: So would Sarbanes-Oxley prevent fraud?
CROOCH: I say very often that we accountants cannot make rules that will prevent fraud. A significant number of the problems we had in the US were partly because of accounting standards but significantly more were the result of people perpetrating fraud and if you get a lot of people in on the fraud, it makes it very difficult for auditors to find it. I wouldn't be so naive to say it will be the end of fraud. It should help. The emphasis they have on internal controls was in part an effort to to be sure they would have controls in place to protect the assets. And in fact if you have a higher quality set of internal controls you can in fact see there will be less propensity for fraud to happen. But will they eliminate it? I never would be so bold to say that.
SOX FIRST: So what's happening with the US and international accounting standards? When can we start to see movement?
CROOCH: One of the issues on the table now is that we have a memorandum of understanding and that memorandum of understanding is between the IASB (International Accounting Standards Board)and the SEC (Securities and Exchange Commission and the hope is that the SEC will be able to allow international financial statements to be filed in the US without reconciliations. Now the timing for that is not clear but the goal is 2008-2009. But what has to happen in the interim is that the SEC has to be comfortable with the quality of the filings, that the auditing is good and that the regulations are good.
SOX FIRST: But as you know, standard setting is always politically loaded. What are you hearing from inside the SEC on this issue?
CROOCH: The SEC has gone on record with this memorandum of understanding that they are willing to go through a process that will lift the requirement to have a reconciliation. But the first thing they are going to do is review the first batch of financial statements at the end of this month. They expect 300-400 registrants to file and what they are going to do is evaluate these to see whether or not they have done a high quality job.
SOX FIRST: Any idea which way the SEC is going to jump?
CROOCH: I don't have any insight to that. Do you mean to make a guess whether they will accept the change? In my view it is way to early to make that judgement because there are an awful lot of steps they have to go through before they are going to make that judgement. I have never heard any of them say they have an answer already ready, or that they think they will go one way or the other. I honestly believe they will go through this process and make the judgement based upon the facts.
SOX FIRST: What happens if it doesn't go through?
CROOCH: I haven't even thought about it. I honestly haven't, I'm being very honest with you. I have been working very hard toward this end and I am not ready to concede that it is not going to work. I have no indication on the part of the SEC that they have a predisposition on this. They have a process that they are going to go through and they will make judgements on the what the facts are.