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Online Issues > July 2002 > Home
Letters Adhering
to Zero Tolerance In my opinion, one of the biggest failings of our profession right now is not that we don’t intend to adhere to the zero tolerance principle. Rather it is enforcing the rules when a CPA or CPA firm does not. Missing in all the rhetoric are the actions taken by the profession to get to the bottom of this and do something about it promptly. Is there any reason to believe proper audit standards were applied at Enron? Does destroying documents in the face of a government review warrant a close look by the profession? And can we believe peer review is to be taken seriously in view of recent events? Does this warrant an investigation now? So, what is happening? We spend a great deal of money on an ad campaign to assure the public how righteous our profession is. All kinds of articles tell CPAs of the good steps we have taken over the years, including the SEC practice section and the O’Malley panel. But where is the mention of a review of our own procedures so we can do something when it is clear we have passed the zero-tolerance point? What good is zero tolerance if nothing happens to those who don’t adhere to it? An ad campaign without internal introspection is not going to save us. It is just a matter of time before we have more Enron-type problems. Unprecedented change has to include the steps we need to take to deal with these types of situations—now and in the future. The public rightly does not have confidence in a profession that clearly has something wrong and cannot or will not address the rule breakers. Other steps being taken now will be for naught if rule breakers face no downside risk. This is clear to the public—it should be clear to us as well. We worked too hard to get our profession to where it was. We need to work just as hard to get the ship back on the proper course. We owe much more to ourselves and to the people who went before us who kept this profession on a lofty perch of excellence and at the top of the public’s confidence. Dorsey Wittig, CPA Profession’s Integrity at Stake The AICPA must understand the severity of the situation and take necessary action now before it is too late. It must expel or severely punish Arthur Andersen for the firm’s actions in the case. I know it is probably politically impossible for the AICPA to take any severe action against Andersen, but that’s exactly why the Institute and the profession are going to suffer. The general public is well aware, and will become more aware, given the media attention to this case, that influence and politics control our profession more than ethics. Unless a great deal is done now, the integrity of our profession may never recover. Rob Benson, CPA A Reader’s Solution to
Enron-Type Frauds There always will be managers of corporations willing to commit fraud or “manage earnings” either for their own enrichment or to keep their jobs. It is the role of the CPA (since the Securities Act of 1933) to independently audit those books. The breakdown of this process occurs when CPAs maintain continuous relationships with client firms for many decades and believe they cannot afford to withdraw from an account in instances where the managers do not follow generally accepted accounting principles. The long-known answer is mandatory rotation of CPA firms, probably every three years. Congress has proposed it on several occasions. Each time it has been defeated, as it probably will be again this time, by the massive lobbying of corporations and the CPA profession. Who believes Andersen would have approved of the Enron financial statements if they had known they would not be back the following year due to mandatory rotation? Unfortunately, there are few people, and none with power and money, to lobby for this proposal. There is lobbying only on one side. The irony is that if the CPA profession agreed to mandatory rotation it would benefit financially in the long run. The same Fortune 500 companies still would rotate among the same large firms, and the transition costs of rotation actually would raise the aggregate fees for the CPAs. Of course, the real beneficiary would be American capitalism, which finally would have the truly independent auditing profession foreseen by the authors of the Securities Act of 1933. Richard J. Waksman, CPA In Support of CPAs I believe accountants are as important to us as doctors. Without financial help, many of us, even in other financial service categories, would be up the creek without a boat, much less a paddle. I hope you will publish this letter so that accountants all across the country will know there are still professionals who recognize the CPAs’ integrity and kindness. Jonah N. Manning Could Five Years Be a Deterrent? That there are fewer accounting students, I believe, is directly related to the requirement for five years of education prior to certification. What college student today wants to commit to a field that requires more than a bachelor’s degree, when finance, marketing and information technology do not? When I graduated with a bachelor’s degree in business and economics, and a major in accounting, I wanted to study another area of business. So I immediately started to pursue an MBA in finance in the evenings while working days at a CPA firm. This did not preclude my passing the CPA exam the first time around and ranking among the top 10 in the state. A five-year requirement/roadblock might have led me to reconsider pursuing my CPA certificate. While the five-year program may have seemed to be a good idea 10 years ago, the reduction in accounting majors in college today should tell us to revisit that decision. Paul Tomaszeski, CPA A Vote for a Four-Year Degree However, the seeds for this were sown by passage of the 150-hour requirement a few years ago. The primary result was to restrict the number of new CPAs by requiring an extra year of education. The article blames the drop in students on academic resistance to curriculum shifts. This appears to be conjecture since no survey data were provided. I’m sure academic inertia exists, but not so sure prospective students think about it. I think they find the concept of a meaningful career and compensation after a four-year degree much more compelling. Given the post-Enron climate, I don’t have much hope for a turnaround. Faced with this environment, talented students will vote with their feet, as they already have. For years, we were among the professions that offered credentials after a four-year degree. The fact that people were passing the CPA exam indicated a four-year degree was (and is) sufficient academic preparation. Should the profession need to enhance the quality of new CPAs, the best way to do so would be to revamp the CPA exam, rather than offer artificial barriers to taking it. The 150-hour requirement should be voted out immediately. Meanwhile, I would welcome a statistical study on the drop in accounting students, as opposed to the reported speculation. John F. Temmerman, CPA Sees Overemphasis on Credentials As an accounting undergraduate from 1969–1973, I received an excellent accounting education without once encountering a PhD/DBA. My professors were experienced CPAs with MBAs, many with concurrent accounting practices, who were knowledgeable, articulate and interested in imparting the nuts and bolts of the subject rather than the latest mathematical hypothesis on how many debits can be placed on the head of a pin (frequently, in some foreign language). Without question, the business environment and GAAP are much more complex than 30 years ago and accountant skill sets must be as broad as possible. However, ignoring deeply rooted problems with the delivery system for accounting education isn’t going to improve the quality or quantity of accounting graduates. Francis J. Farina, CPA Don’t Lose Sight of Enduring
Values The business environment has changed rapidly, and the accounting profession’s response to these changes may indeed be visionary in some respects. However, some changes that have occurred in CPA firms may prove not to be enduring. For instance, Andersen, along with other major CPA firms, reengineered itself as a “professional service” rather than a “public accounting” firm. Currently, however, in the wake of the Enron collapse, the entire audit community is rethinking how it approaches consulting services for its audit clients. According to “Restoring Public Confidence” (JofA, Apr.02, page 37), “the largest five CPA firms in the United States have recently agreed to impose unprecedented restrictions on the consulting services they offer to their audit clients, and Congress is currently considering federal legislation along these same lines.” Apparently, the investing public still needs CPA firms to be “public accounting” firms. I agree CPAs should play a leading role in fostering continuous quality improvement in accounting education. However, in this process, I hope accounting educators do not discard qualities that have enduring value in favor of swinging with the pendulum as society’s trends come and go. Kay Zekany, PhD More About the Decline in Accounting
Majors However, I know of no accountancy professor who does not endorse computer literacy as a necessary requirement for a graduating accountancy major. Other factors may be affecting accountancy enrollments. How many CPAs does this country need? The alleged low starting salary for students of accountancy may be the result of the laws of supply and demand. This is not necessarily evidence of inadequate education. Another likely and more serious reason for the decline in the number of accounting majors is the demise of the accounting profession. Note that financial journals and newspapers now refer to us as the “accounting industry” or the “accounting business” and with good reason. What once was accepted as required professional conduct now is considered a liability. Service to the public, always a benchmark of a profession, seems no longer our primary purpose. Given the current status of CPA practice, is it surprising that students wishing to enter a profession may choose to look elsewhere? Ironically, the Enron debacle may resurrect the accounting profession, although at this time that is far from certain. Delmer P. Hylton, CPA College Meets Curriculum Criteria This is not true at Olivet College because
Student feedback from this unique system is very positive. I received an e-mail from a graduate who attributed his placement with a good starting salary not to his accounting or insurance education but to his spreadsheet education in Excel. Richard D. Parker, CPA On Hedge Funds—The Good and the
Bad The article states that most hedge funds are “run by experienced managers whose goal is to minimize risk.” In fact, the challenge in alternative investing today is finding experienced and capable managers who still are taking money. The article refers to hedge funds as offering “steady gains and wealth preservation, year in and year out.” There are many varieties of hedge funds. Many are extremely aggressive and can lose a lot of money in any given year. Others are conservative and can be thought of as bond equivalents. None of them would dare claim to make steady gains, year after year. Some aggressive long/short managers are not trying to minimize risk at all. They’re simply trying to make as much money as possible because they’re paid on an incentive basis. With these types of hedge funds, it’s critical to learn how much of the manager’s own net worth is invested in a fund. I agree that a fund-of-funds approach makes the most sense for the average investor. However, I believe there are more bad hedge fund managers than good ones and more average funds-of-funds than good ones. In addition, since most advisers now are touting “alternatives” and seemingly every brokerage firm under the sun is creating an “alternative” fund-of-funds, it appears to me that this sector will be the next area of investor disappointments and blowups. Finally, it’s important to remember that the stock market generally has an upwards bias, whereas hedge fund performance is totally dependent upon the skill of the manager. Robert Stenson Another Look at Hedge Funds Although CPA practitioners may have some high-net-worth clients like those described in the articles, most of us work with clients with far more average investor profiles. Since these clients don’t fit the eligibility requirements for many “alternative investments,” what options are they left with? I encounter many individuals who were hammered in the market in the past two years but don’t have a clue what their response should be. Many still cling to the buy-and-hold approach that was widely hailed by Wall Street as the only successful way to invest. For those without much market savvy, my recommendation to clients is that cash is king and debt loads will be a death trap. For those with a slightly more aggressive stance, I suggest balancing that position with bear-market mutual funds. As for timing models—and they do work—there is a time to be in the market and a time to be out—all the way out. I could see the handwriting on the wall two years ago when my co-workers were “swinging from the chandeliers” and proclaiming how wealthy their heirs would be from a few stock positions. Unfortunately, my proclamations that the bull market would end fell on deaf ears. I wonder what the accepted strategy will be at the bottom of the bear market. Dale Schwartzenhauer, CPA
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Students use Excel, Power Point and Word to
prepare templates for all accounting problems. They then
use these templates during the testing process.