Phoenix (Nov. 12, 2002) - Speaking for the first time before his peers following Andersen's demise, former chief Joseph Berardino said he was profoundly humbled by the firm's precipitous fall, and offered his views on how to restore the profession's battered reputation.
"I come before you in humility, humbled by the loss of my firm," Berardino, who was suffering from laryngitis, told the crowd of more than 200 CPAs gathered here for an American Institute of CPAs'-sponsored "State of the Profession" conference.
Although he didn't go into detail about Andersen's fall for legal reasons (he could still be called to testify at any civil trial regarding the firm), he did say that as soon as the Department of Justice's indictment was handed down, he made the decision to step down from a post he had only held for 13 months, following decades at the firm.
"I met with the other (Big Four) firms and said, 'I'm out,'" he told the gathering. "I didn't want my partners to think I would be the first to strike a deal (with the government)."
Since Andersen's guilty verdict, he has met again with the heads of the Big Four, and said he is dismayed by what he perceives as their dangerous complacency. "They think (what happened to Andersen) can't happen to them. Talk to me a year ago, and I would have said the same thing," he warned.
During the past seven months, Berardino said he struck out on a fact-finding tour, meeting with institutional investors, heads of companies, large and regional accounting firms and many others, to help him understand exactly what had gone wrong with the profession, which he believes predates Andersen's woes.
"This crisis did not rise up overnight and we cannot wish it away," he warned. "The seeds were planted years ago."
Berardino outlined five trends which he believes redefined the way businesses are run, and helped lead to the current crisis in the accounting profession and corporate America.1. Democratization of the stock market - More Americans than ever before are individually investing in the market via mutual funds and 401 (k)s.
2. Linking executive pay to performance. "Finding ways around accounting rules became a new sport," Berardino said.
3. The media. CEOs became celebrities and earnings press releases turned into media events, putting pressure on companies to outperform.
4. The introduction of hedge funds added enormous new risks to investing and fueled the short-selling boom. "Decisions were fed by rumors," he said.
5. Investors became wary of perceived conflicts of interest.Berardino said the Sarbanes-Oxley law was necessary "to appease the public" and added that the profession must work with the new Public Accounting Oversight Board to renew the profession. While some fixes in the bill may not improve auditing, "doing nothing is not an option," he said.
Berardino offered some guidance on how he felt the profession might regain its stature in the eyes of investors, the government and its peers. He said he embraced the move away from rules-based accounting methods towards a principles-based model, changing audit opinions from pass/fail to a letter grade, and revamping the audit to encompass enterprise risk management. "We can help prevent business failures," he said. "And we must increase our ability to detect fraud."
Berardino's final warning to his peers was that the public is closely watching the profession and will judge it not on what happened, but how it responds to the crisis at hand.
"We need to find a way to get ahead of the market," he said. "If you're not the lead dog, the view never changes.
-- Tracey Miller-Segarra
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