New York (May 19, 2003) -- The creation of the Securities and Exchange Commission and the CPA’s auditing franchise after the 1929 stock market crash forged a good safety net for that era but it can’t bear the weight of 21st Century business practices, said Charles Niemeier, acting chairman of the new accounting oversight board.
Taking a stroll through the history of accounting during the New York CPA Society’s annual dinner, Niemeier noted that every decade or so since the 1920s, businesses have undergone a series of mini accounting-related crises, each one in retrospect indicating that serious problems did exist, he said.
When Enron and WorldCom and the other accounting scandals finally erupted, “The financial reporting system that we thought was great, the old net created when the stock market crashed, did not work,” he said. “Businesses today are far wider and stronger and our old net can’t work,” he added.
The Public Company Accounting Oversight Board was created to fix the net, but Niemeier warned that this won’t completely solve the problem. He said the PCAOB can take advantage of the new atmosphere of greater openness where whistleblowers feel compelled to come forward with information about questionable business practices, but warned, “We’ve got to take advantage of the window we’ve been given,” because it won’t stay open forever.
He also dismissed the debate over principles-versus-rules accounting as missing the point. “Rules provide consistency and certainty. The problem arises when people want to use them to undermine financial reporting,” he said.
-- Tracey Miller-Segarra
