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CPA Profession Finding Its Way Despite Scandals

CPA Profession Finding Its Way Despite Scandals

Accounting: New Federal Oversight Law Keeps Eye on Public Companies

BY MIKE ALLEN

Not long ago, the most disparaging thing accountants heard about their profession was the nickname “bean counters.”

The remarks got a lot more serious over the past two years following high-profile accounting scandals at such companies as Enron, WorldCom, Tyco and, in San Diego, Peregrine Systems. Those scandals were followed by criminal investigations and some indictments.

“There’s no question, the reputation of our profession has taken a pretty good hit,” said Bill Ezzell, chairman of the American Institute of Certified Public Accountants, who spoke last week in San Diego to the California Society of CPAs.

In an interview before his speech, Ezzell said while the overall reputation of accountants may have been tarnished by the recent scandals, the upside is most clients still retain great respect and confidence in their own accountants.

“As far as individuals, and as far as the way we practice in the marketplace, there is still a great deal of trust and confidence in the value of CPAs.”

Ezzell, who has been an accountant for 29 years, said the reforms enacted in the wake of the corporate scandals addressed a few specific issues intended to improve the transparency of financial statements, and regulatory oversight.

Perhaps the most important impact of the federal legislation known as the Sarbanes-Oxley Act is provoking a greater degree of skepticism on the part of auditors reviewing a client’s books.

“Even if a company was solidly run and never had any past evidence of doing anything wrong, we are now bringing a greater skepticism into the audit process. (The reforms) are asking us to think of how a possible fraud could occur, even if there’s no indication it is there.”

More Aware

Another positive result of the scandals is that more investors are becoming better-educated about corporate financial statements, how to read them, and are not putting so much credence in the views of media pundits and analysts, Ezzell said.

While there has been a lot of press concerning Enron’s problems and other big corporate failures, which spurred criminal investigations, few criminal indictments have been handed down.

Ezzell said the complexity of the fraud found at some corporations is making it far more difficult to prove criminal intent.

Another Sarbanes-Oxley provision calls for the establishment of an oversight agency called the Public Company Accounting Oversight Board. Ezzell said the board has been involved in helping set up the five-member board, which will monitor and inspect the quality of audits done by firms, and handle the disciplining of firms that fail to meet certain requirements.

While Sarbanes-Oxley has had a broad impact, it applies only to public companies and has limited implications to the vast majority of CPAs who don’t audit public firms, Ezzell noted.

John Kennerson, a partner in a small El Centro firm and current president of the San Diego chapter of California Society of CPAs, said while the provisions of Sarbanes-Oxley may not directly apply to privately held companies, the rules and other changes will likely be felt throughout the profession.

Although the regulations are specific to the publicly-traded companies, the fact the rules were changed will prompt auditors to at least think about how they treat certain issues, Kennerson said.

Over the past year, the jokes may have subsided about accountants, but the profession is still attempting to recuperate from all the scandals, he said.

“If someone finds out I’m a CPA and hasn’t dealt with me personally, you feel like you have to prove yourself a bit more,” Kennerson said. “Accountants feel like they’ve lost a bit of their standing among other professions, but we’re going to get it back.”

Steven Wimmers, an Ocean Beach accountant and incoming chairman of the state’s Society of CPAs, said while the profession supports many of the reforms on the federal level, some changes being proposed on the state level could have a detrimental effect.

A move to place the review process in the hands of the state’s Board of Accountancy could turn it into a government audit, and create another needless layer of government, Wimmers said.

Peer reviews of accounting firms are generally done every three years by firms of similar size, with the program managed by the Society of CPAs.

Besides adding to the government bureaucracy, the state regulators conducting reviews may not have the type of professional expertise that now make the process beneficial to most accounting firms, Wimmers said.

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