Massive abuses continue in the Accounting Profession and the
damage is nothing less than staggering. (Hope this hasn't been posted earlier.)
nypost.com
<BEAN-COUNTING BUMS
By CHRISTOPHER BYRON
September 22, 2003 -- CAN we talk? I mean, suppose we all stop yelling about Dick Grasso for just one minute and focus on a much bigger problem.
Instead of fulminating over whether it's fair to fire someone just because he is greedy, let's have a nice heart-to-heart about the accounting profession - in particular the half dozen or so firms that audit the financial statements of nearly all the public companies in this country.
Some thoughts on the matter arise as a result of a terrific, and ongoing, story that began unfolding last week in the Wall Street Journal regarding PricewaterhouseCoopers, the largest of the so-called "Big Four" accounting firms.
More about that in a minute. But first, a couple of observations of a more general nature about the profession these days, as the nation and the economy struggle to recover from the excesses of the worst stock market blowout in American history.
Simply put, these accounting people are really despicable. They're educated, they're intelligent, and they call what they do a "profession" - meaning that they regard it as work pursued for the excellence of the effort and not for the money. Yet when it comes to Wall Street and the institutionalized corruption that passes for self-regulation, they have been nothing more than the piano players in the brothel.
There are plenty of individual accountants who are fine upstanding citizens, I am sure. But as a profession, forget it. They have a skewed moral compass that points to their paymasters instead of their customers; they game the system at every opportunity; and worst, they hide disingenuously behind bogus excuses like "client confidentiality" to duck responsibility for their actions.
More than any other group of people, it is this bunch - represented most particularly by the audit partners and their underlings at the nation's top accounting firms - that have made the whole self-regulatory process on Wall Street such a joke. And mark this: The self-regulatory system will never be fixed until the accounting profession itself is overhauled to the extent that the words "I Am Personally Responsible For My Actions" are tattooed across the foreheads of every audit partner in the game. Yet no one is so far even discussing that matter, let alone trying to do anything about it.
THE output of the accounting profession's labors - namely, the audited financial statements of Wall Street's public companies - are the absolute cornerstone of the entire self-regulatory system of America's capital markets.
The companies themselves hate these audits. They're expensive, they're time-consuming and, in theory at least, they represent an institutionalized brake on the eagerness of corporate managements to hype their own financials at every opportunity.
No, it is the investing public that wants audited financials. These investors are the real consumers of what the auditing firms produce. Without reliable, accurate and fully audited financial statements to guide them, investors might as well be trading bubblegum cards or My Little Pony collectibles. But every time the matter has arisen, the profession has screeched like a sack of bagged cats to avoid being held accountable to anyone - least of all the public - for what the firms state in their audits.
Over time, we've seen the profession give ground grudgingly when it has absolutely had to - with, for example, such pseudo-reforms as Statement on Auditing Standards No. 99, which sets out "minimum procedures" for detecting "material fraud" in a client's financials.
But whenever possible, the profession has simply stonewalled reform efforts. In 1977, it was forced to accept the creation of an autonomous watchdog group called the Public Oversight Board. But when the Board began trying to hold special audits of the accounting firms themselves, the Big Four simply cut off their funding and forced the POB out of business.
Now the Bush administration has set up the same thing all over again - the Public Companies Accounting Oversight Board, created by the Sarbanes-Oxley Act - to be paid for this time around by the taxpayers. But the new board is being run by some PWC guy, and though he personally may be a first-rate fellow, he comes from a firm with an astonishingly warped value structure.
FOR more on that subject, please direct your attention to the aforementioned Wall Street Journal stories of last week, which reveal that PWC is being charged in Arkansas with (and I hope you're sitting down for this) submitting padded expense accounts to its own clients.
Specifically, it seems that an Arkansas shopping-mall operator named Warmack-Muskogee Limited Partnership is accusing PWC and two others of the Big Four (KPMG and Ernst & Young) of fraudulently overcharging their clients by billing them for full-fare airline tickets and hotel rooms, then secretly pocketing any rebates they managed to wrangle out of the carriers or the hotels. The practice, according to PWC internal documents that have been produced in the case, appears to have been known within the firm as a "rebate program."
Meanwhile, it turns out the Justice Department is investigating PWC for other potential irregularities, involving various federal contracts.
And it gets worse. According to the Journal, PWC has been sanctioned by the Arkansas trial judge for document destruction in the case, as well as for misleading the court that the firm's top U.S. partner, Dennis Nally, knew nothing about the chiseling. (Evidence subsequently surfaced that he knew all about it.)
I mean, is that unbelievable? One of the requirements that SAS No. 99 now supposedly places on auditors is an "affirmative duty" to look for fraud in areas such as expense account cheating. Yet here we have the largest accounting firm in the country being sanctioned for destroying documents in a case involving charges that the firm engaged in the very activity it was supposed to be rooting out and exposing.
This is like some screwball version of a "Dirty Harry" movie - only with bad accountants instead of bad cops.
What's more, instead of owning up to what it appears to have done - or even a "modified-limited" own-up, as in "this is outrageous and we're going to be get to the bottom of it right after lunch" - all the public has gotten are versions of "no comment."
But that's really not surprising, because stonewalling is all the public ever gets from these people - the predictable "no comment," dressed up whenever possible with some righteous-sounding malarkey about "client confidentiality."
Really? Client confidentiality for the crime-drenched Bank of Credit and Commerce International? Client confidentiality for its audits of Tyco International by a PWC partner who was barred last month by the Securities and Exchange Commission from auditing any public companies ever again for the rest of his life? Client confidentiality for its audits in the Lancer hedge fund affair, where the audits are simply indefensible and the fund itself has collapsed and no longer exists? Client confidentiality for that? Oh, puhleeze!
Do you want to know how to stop this stuff dead in its tracks? It's simple. Do to the individual audit partners what the Sarbanes-Oxley Act has done to the CEOs: Make them swear to the accuracy of their audits and sign their actual names to the documents - instead of sneaking by with the trail-covering sign-offs like "PricewaterhouseCoopers," or whatever, that they've been getting away with up until now.
On the other hand, don't count on that happening anytime soon. The people in this profession would rather have the outer layers of their eyeballs peeled off than stand up and take responsibility for what they do.
Anyway, thanks for this moment on the accounting profession. Now it's back to Dick Grasso and the questions that are gripping America: What do you think? Should he have been fired?> |
