PARDON MY SKEPTICISMThe Nehru jackets are still hanging in a lot of closets, alongside the trends for improving the audit profession.
Your editorial in the March 19-April 1 2007, issue ("The height of fashion," page 6) suggests the hope that had an organization such as the Center for Audit Quality been formed around 1999, there "would have been no need for the Public Company Accounting Oversight Board or Sarbanes-Oxley."
I wish the new group all the luck in the world, but please excuse me if I seem to be a bit pessimistic. The PCAOB and SOX have been a long time in coming, and are a direct result of the Big Eight, Six and Four, together with the American Institute of CPAs, watering down the auditor's responsibilities and looking the other way when audit - I mean business - failures occurred.
If you go back to the 1960s, 1970s, 1980s and 1990s, you will find similar frauds and abuses perpetrated by the major companies, and the AICPA using a Band-Aid approach to assuage Congress, which threatened to control the "profession" through federal legislation.
As each disturbance was uncovered, the brain trust at the AICPA assured Congress the situation would be controlled. The division for firms, peer review and mandatory continuing professional education promised to put an end to the seemingly continuing professional frauds.
The solutions were directed at the "profession," not the perpetrators. As a result, small practice units bore, and continue to bear, the brunt of these "protective" measures. The Big Four continue to go their merry way, doing sub-standard work, overlooking or eliminating proper auditing procedures, and paying huge settlements (without admission of any fault).
The very organizations that have the money and the intellect to set an example of propriety within the profession appear to have abandoned the ethics of the fathers for the greed that size and power can dictate. And the AICPA stood by and joined the effort to pressure Congress to turn down [former Securities and Exchange Commission chair] Arthur Levitt's proposals for audit independence rules.
Chances are that the PCAOB and SOX never would have come to pass if Enron's employees had not been bilked of their retirement monies. Then it became a political situation, and the very same members of Congress who ignored Levitt's pleas for control "came to the rescue." Congress would rein in the abuses of the accounting profession, and the PCAOB and SOX were born.
However, the composition of the new organization is disturbing.
The Center for Audit Quality is "backed by eight of the country's top firms and the American Institute of CPAs," and "is looking to wield a big stick of influence around the Beltway when it comes to matters of auditing and investor policies."
Being of suspicious nature, I wonder to what extent the AICPA will use its wealth, organization and political capital to influence the new organization. And what about the new Big Eight? Is this like the fabled fox in the chicken coop? Are they really anxious to clean up the act, restore ethical values to their work habits and bring back the professional pride that was the spirit of the CPA profession in days of yore? Will they recognize that the accounting profession includes about 47,000 CPAs in public practice who handle several million small, non-public businesses in the United States?
Let's hope that the Nehru jackets will disappear and that the "trend of improving the audit profession" will be strong, meaningful and everlasting.
Ed Kliegman
Founding partner (ret.)
Marcum & Kliegman CPAs
Melville, N.Y.
WHO PAYS?
I enjoyed your article about "State tax rates hold steady" (April 16-May 6, 2007, page 10) very much, but noticed that you allowed economist Curtis Dubay's personal opinion about corporate taxes to go unchallenged.
As he put it, "[The public forgets] that companies are a legal fiction and that it's the people who the pay the [corporate] tax." Is it reasonable to categorize business entities that control billions and billions of our national wealth as fiction? I honestly don't think so.
More accurately, a corporation is a shelter that protects its owners from legal liability for the entity's day-to-day actions. Over a century ago, it was reasoned that these owners should pay something in taxes for that legal protection. Times have changed, and this rationale seems to be largely forgotten in our own time.
Without a doubt, we need corporations to pool concentrations of capital great enough to finance advanced technology. But let us not indulge in economic theology.
In classical economics, a corporation was reasoned to be a group of investors. That relationship has gotten much more complicated over the last 70 years, however. No one supposes that investors actually control their corporations anymore. Those in charge today are obviously the corporate executives. So, corporations have become bureaucracies that manage, and sometimes mismanage, other people's money.
Who pays the corporate taxes? Studies have found that sales and excise taxes are partly shifted to consumers; payroll taxes are shifted to employees; and taxes on capital are borne by the business owners.
To my thinking, the notion that all taxes are simply passed through to the consumers is an unscientific idea on the same level with trickle-down economics and Creationism.
Tom Louderback, CPA
Louisville, Ky.
