There seems to be a feeding frenzy with regard to Andersen as the business press zeroes in on the shredding of paper, the criminal indictment, high consulting fees, civil suits, and Andersen's break-up. Members of Congress are joining in and latching on to the need for regulatory reform. They are urging the prohibition of certain consulting services and a new oversight system for auditors of public companies. The AICPA leadership has been extremely active in providing input on the advisability of these proposed changes.

Beyond that, in a press briefing with the editors of Practical Accountant, Electronic Accountant, Accounting Today, and Accounting Technology, Barry Melancon, AICPA president and CEO, and James G. Castellano, AICPA chairperson, both indicated a concern for the "cascading effect." Basically, the regulatory reform of auditors of public companies could impact local and regional accounting firms who are not involved in the audit of public companies.

Castellano sees no problem with the various services provided by accountants to private companies. He gives the example of a bank's reliance on financial statements prepared by accountants as sees this service as totally different from those performed by an auditor of a public company, which acts as a "guardian of the public interest."

However, in a worst case scenario of the cascading effect, Castellano envisions states having different standards with regard to independence. So, an accounting firm with clients in different states or those operating in more than one state could be subject to varying standards.

He admits that the cascading effect is a real possibility as some states (e.g., New York) have already held hearings on regulatory changes. The AICPA, through its Washington, DC office, is assisting state societies in their efforts for the accounting profession to be heard at the state level. Castellano is uniquely qualified to comment on the possible ramifications, because in addition to being AICPA chairman, he is the managing partner of a regional accounting firm in St. Louis.

I believe that it is the utmost importance that in the current public debate, more attention must be given to distinguishing the difference between the services and constituencies of auditors for a public company and those rendered by the accountant for a private company. Although the current feeding frenzy makes that much more difficult, it also increases the necessity. There has always been a marked difference anyway between the Big Five and the rest of the public accounting world. And yes, we might soon end up with a Big Four that is forced to change how they operate. It would be unfortunate if the world of local and regional accounting firms was adversely affected by this so-called cascading effect.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access