P R O F E S S I O N A L . . . C O N T R O L L E R S
Some Good From Enron? © 2002
by Adrian W. Hollander, C.P.A., CISA,
CIA, CBA, CFSA,
President of COMPLUS Inc. – Professional Controllers
I am saddened by the
increasingly more ominous news concerning the Enron situation. It seems to be an embodiment of “Two wrongs
don’t make a right.” A good friend is
part of the Andersen executive corps (not corpse, I hope). Please pray for him. Undoubtedly, this case will join the ranks
of the top-10 all time worst business failures. There have been positive developments from these debacles,
though. The “roaring ‘20’s” followed by
the “crash of ‘29” produced the SEC and the required financial disclosures that
we take for granted today. The
McKesson/Robbins case caused confirmation of receivables and observation of
inventory to be added to Generally Accepted Auditing Standards. The Equity Funding case spawned the
development of EDP-auditing.
Some good should come from this
situation, too. For decades accountants
have argued about what services could be sold to one client. I have always agreed (with what I was taught
at Arthur Andersen & Co. in the 1960’s) that an auditor’s “independence”
(together with his analytical skills) is the basis for the value of his
“opinion.” “Independence” is the
capacity to represent 3rd party (outside the client) interests. Appearance is even more important than
fact. Even though I doubt that someone
who can be bought for the price of lunch is worth having, multi-million dollar
consulting engagements to audit clients do raise questions. In the “old days” big firms protected
themselves by assigning personnel to do the audit who didn’t know the consultants. “We” were told to ignore the firm connection
and report problems, if there were any.
This process worked for decades apparently because “nothing went
wrong.” Well, now something has, and
the critics (including me) are saying, “I told you so.”
In my opinion, small
accounting firms are even bigger offenders on the “independence” issue than big
ones. Though the stakes are smaller to
the general public, they are no less important to lenders, creditors, absentee
owners and employees of these smaller company clients. I believe (and state so in my web site
article, “We Sell Alliance”) that accounting firms who become “trusted
advisors” for their clients should not do audits for those companies. CPA’s must be told that they will sacrifice
their “independence” if they assume that “trusted advisor” roll. Until bankers, especially, in this
environment are willing to demand a change, though, there will probably be more
“accidents looking for places to happen.”
send e-mail to: AHollan700@aol.com