With the start of 2006 here, we took a look at replies from industry leaders when asked in the fall of 2005 if they felt the profession had successfully burnished its reputation and moved beyond the scandals of a few years ago.
Through January, WebCPA will post new comment collections each week, featuring thoughts from many of the individuals who made Accounting Today's 2005 Top 100 Most Influential People list.
This week, among others, thoughts from Grant Thornton's chief executive and executive partner Edward Nusbaum; William Hermann, managing partner at Plante & Moran; the American Institute of CPA's 2006 chairwoman, Leslie Murphy; and KPMG chairman and chief executive Timothy Flynn.
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"The profession is not yet in the clear, because the scandals appear to have not ended. The independence of the CPA gave the profession its power and credibility. The practice of having CPA firms engage in both audits and consulting services for the same client polluted the business environment because of the inherent conflict of interest. This conflict has now been recognized and outlawed. The public interest must be the prime consideration in attest function engagements and the CPA must be independent.
"Each time a new accusation is made against a large company, all CPAs hold their breath. Fortunately for the profession, most clients of the small practitioner do not paint their own CPAs with the same brush. There is much more awareness among CEOs that they can no longer claim that they don't know what's going on in the balance sheets and the business.
"CPAs are also more aware of their own responsibility to maintain an honest and independent perspective when engaged in the audit function. They must respect their own expertise as a CPA. While significant progress has been made among the general public, the profession must be more vigilant if it is to return to its previous place as the most respected and trusted profession."
-- Carol Markman, President, National Conference of CPA Practitioners
"The profession has made significant progress in improving our reputation during the last few years, and the PCAOB has helped in that process. Nevertheless, the profession must do more to proactively improve quality and our reputation. One step needed is for the accounting firms to work together and adopt best practices to improve the audit and tax processes, including the detection of material fraud."
-- Edward Nusbaum, CEO and Executive Partner, Grant Thornton
"The recent pattern of earnings restatements, fines, penalties and high-profile executive convictions has kept a spotlight on corporate America and on our profession. We have made progress, but we have not yet achieved the level of regard of which we are capable.However, the public, the media and those in political positions seem to accept that we have rethought and recommitted ourselves to our role in society. This is still a new, young environment. As such it is an opportunity for a golden age for our profession. I believe we are up to the task."
-- Gary John Previts, Professor and Associate Dean, Weatherhead School of Management, Case Western Reserve University
"No. KPMG [was 2005's] mess."
-- James Smart, Managing Partner, Smart & Associates LLP
"It's moving in the right direction, but it's still a work in progress. When the profession does things right, it's not noticeable: You don't hear about bad behavior reined in by auditors because that's not the way the system works. When things go awry, that's news.I think we need to have a long, long period of the profession doing things right before it completely recovers its reputation -- a long time for people to forget about the scandals, and notice that the system is working the way it should. "
-- Jack Ciesielski, Publisher, The Analyst's Accounting Observer
"Thanks in part to the great effort by the AICPA and the diligence of the many 'good apples' in the profession, I believe there has been a tremendous improvement. Unfortunately, there will continue to be some backsliding caused by ongoing negative events and activities. We need to be ever vigilant in fighting the never-ending challenges by focusing on doing the right thing for the right reason, and stressing the importance of principles and ethics, not rules. I believe there's no right way to do the wrong thing. Simply burnishing a scarred reputation cannot be sufficient -- we must re-establish the CPA as the gold standard for integrity and ethics. As once quoted in the AICPA's introduction to the Code of Professional Ethics, the 1st century philosopher Marcus Aurelius stated "A [person] should be upright, not be kept upright."
-- William Hermann, Managing Partner, Plante & Moran
"The process is underway to restore ethics to the tainted accounting industry, but it may take years to burnish this bad reputation. The public's outrage may calm as harsher punishment are imposed on white-collar criminals involved in corporate fraud at stockholder and stakeholder expense. This is happening now to the delight of general public."The recent news that ex-WorldCom chief Bernie Ebbers had been sentenced to 25 years in prison for his role in the $11 billion dollar accounting fraud does reflect the seriousness of the crime. It may set the tone of intolerance for fraud and fleecing of stocks and company resources at the executive level for some time to come. The message is clear: More than ever before, the same rules are applying to everyone at the top and bottom levels of corporate America. It will be interesting to see the outcome when Enron's former top executives go to trial.
"Unfortunately, the financial backlash of the Sarbanes-Oxley Act is the exorbitant cost to public companies of complying with these regulations.
"The Foley & Lardner LLP report, 'The Cost of Being Public in the Era of Sarbanes-Oxley,' estimates the cost of complying is up 33 percent in 2004 over 2003. There is also the cost of lost productivity due to SOX. These issues send a clear signal to private companies to stay private for economic reasons."
-- John Hewitt, Founder, Liberty Tax Service
"I'm not sure I would use the adjective 'burnished' to describe the profession's standing within the business and investor community. I do believe, however, based on our current research, that the CPA's reputation has returned to the same high level it was before the scandals."It is still critical for the profession and for our members, whether in public practice or industry, to be continually vigilant and to constantly remember who the ultimate client is, and to conduct our affairs with the professionalism and objectivity that the users of our services (public and private) demand and deserve."
-- Charles Landes, Vice President, Professional Standards and Services Group, AICPA
"I believe the profession still suffers from a 'stealth' mistrust as a whole. I say stealth because if you ask companies or individuals about their auditor or tax accountant, the universal answer is almost always that they trust and respect their CPA and actually never stopped trusting them even in the midst of all the Enrons. So, I think the 'scandalous' reputation the profession has as a whole amongst the public exists, but it is unseen at the individual level, which, by the way, makes up the profession -- sort of a Catch-22."Perhaps it is a bit of mob mentality that keeps beating up the profession, but I also believe that we need to continually look in the mirror as to our role in the first place, and continue to maintain and demand the highest of the high in our professionals and services. Eventually, if we stay the course, we will regain and perhaps enhance the overall reputation of our profession."
-- Bo Fitzpatrick, President, AuditWatch Inc.
"Yes. Confidence in our profession is on the rise. In fact, statistics and surveys show that the public's perception of the profession is higher today than it was before the scandals. We heard at the May AICPA Council Meeting in Washington, D.C., that C-suite executives are satisfied with the skills and objectivity of CPAs, and that the perception among business decision-makers of our commitment, ethics and reliability is notably higher than it was just two years ago."Looking beyond the numbers, I know this to be the case based on what I've witnessed and through feedback I've received from the financial community.
F"urther, the current business environment has created remarkable business opportunities for local and regional CPA firms. We are finding that firms of all sizes not only have rebounded financially from a few years ago, but are also facing growth opportunities with new clients and new practice areas. Practice expansion and opportunities enable our firms to excite and motivate professional staff and attract -- and retain -- the best people."
-- Richard Caturano, President, Vitale, Caturano & Co.
"I don't think that the industry has a burnished reputation. I think that people have accepted the scandals with respect to the complexity of the job, and problems always exist. They've come to realize this. It's almost acceptable. This is baggage that will not go away."
-- Gary Shamis, Managing Partner, SS&G Financial Services
"The scandals of Enron, WorldCom and others still haunt us today. Because of a lack of confidence in the financial statements of larger corporations, many people like me are shunning the stock market and diversifying more into real estate -- no one wants to be holding shares of the next Enron when it hits, and many investors still feel that another Enron is out there yet to be exposed."This general feeling has suppressed the markets and we have seen little market gain since those scandals broke. The blame for this lies squarely on the fraudulent financial statements - after all, if amounts that huge can go undiscovered at a company like Enron, then surely there may be other such fraudulent amounts lurking about other public companies as well."
-- J. Carlton Collins, President, Accounting Software Advisor
"The profession has made some progress, but much remains to be done. While the Public Company Accounting Oversight Board has acted swiftly to restore the profession to its historical attest function in accordance with the provisions of the Securities Exchange Act of 1934, and to establish new high-quality auditing and professional practice standards, the profession is still in a period of adjustment to the new realities."Furthermore, as the scandals from the corporate collapses continue to occupy front-page headlines, it remains difficult for the profession to shake the perceptions of many that it remains subject to profound conflicts of interest.
"All the same, I am hopefully that the necessary transformations will occur. The profession boasts many excellent auditors in positions of leadership in their firms, professionals with high personal standards of ethics and professionalism, who have a clear vision for where the profession must move in the 21st century. I am quite confident that these leaders will prevail in the end, because they must if the profession is to survive as an independent, private-sector watchdog over the interests of investors."
-- Rebecca McEnally, Director, Capital Markets Policy Group, CFA Centre for Financial Market Integrity
"The profession has restored confidence, as evidenced by opinion polls and the surge in interest in accounting careers. Accounting firms are prospering, and much has been learned from the business scandals that rocked the profession and the capital markets."
-- James Castellano, Chair, RubinBrown LLP
"Recent research commissioned by the AICPA from Penn, Schoen & Berland Associates indicates that the profession has rebounded from the financial scandals of a few years ago and, in some cases, approval ratings even exceed the levels we enjoyed before those events. While I believe we should feel great about these results, our position and ratings likely are more fragile than in the past, and some potential hurdles remain, including the abusive tax shelter issue."Maintaining this favorable reputation in the future will require our continued commitment to quality, integrity, objectivity and transparency. Our ability to change will be tested by the new regulatory requirements and the changes necessitated from the additional complexities of our global business environment."
-- Leslie Murphy, 2005-06 Chairwoman, AICPA
"No, the KPMG tax shelter scandals have again caused the profession to be demonized by regulators and the media. All Americans should feel indignant about these tax evasion scams. When citizens of this country do not pay their fair share of taxes, the remaining honest Americas must eventually pay higher taxes to cover the shortfall."
-- Stephen "Tony" Batman, Chairman, CEO and President, 1st Global
"In my view, there have been significant developments over the last several years that bode well for the future of the accounting profession."There is no doubt that the accounting profession has taken great steps to improve audit quality. Additionally, new regulations have gone a long way toward limiting and deterring fraud. The result is stronger corporate governance, more transparent financial reporting and greater investor confidence in the capital markets. As a firm, KPMG is committed to the highest levels of quality in its audit, risk advisory and tax practices, and in its client support services. The firm also is making significant investments in quality-related processes, tools and training.
"As a result of new regulatory requirements, companies have far greater knowledge of their internal controls for financial reporting today than they did just a few years ago ...
"Auditors, issuers and regulators need to collectively work together to strike the right balance of meaningful improvements in year two of Section 404, while retaining the rigorous process of year one. Auditors must truly integrate the 404 attestation and financial statement audit process in year two. This was a desired goal in year one, but it simply did not materialize. We have the time and experience to make significant improvements in year two. There also can be a greater reliance on the work of others.
"This received limited application in year one because the clients' resources were dedicated to the documentation and testing of management's process. Year two should be a different experience, since the documentation process has been completed. Finally, there can be appropriate consultation with clients. Auditors can provide advice and counsel on accounting and other matters, while preserving independence and the integrity of the process."
-- Timothy Flynn, Chairman and CEO, KPMG
