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Online Issues > July 2003 > Letters
Letters Auditors Don’t Create Corporate
Environment Auditors are not in any way responsible for creating an environment in a corporation. That responsibility rests entirely with the client’s board, audit committee and management. It’s bad enough that the plaintiffs’ bar works so hard to make auditors responsible for the problems that arise at client corporations. We in the accounting profession should not fall into the trap of reinforcing the efforts of the plaintiffs’ bar. James L. Coogan, CPA Revisiting Temporary CFOs It implied that “about half” of Robert Half Management Resources’ assignments could lead to full-time positions. I would like to clarify that about 15% of our interim engagements convert to full-time positions. The vast majority of Robert Half Management Resources’ clients turn to us for qualified professionals on a project basis (our business model and core competency) to access senior-level financial talent that may not be available internally and typically is not required on a full-time basis. Most of our consultants seek project work as a career choice for the variety and challenge it affords and because it enables them to serve as change agents for multiple organizations. Paul C. McDonald Active Management vs. Indexing However, like many investment articles the JofA has published, it was skewed in avoiding mention of the best proven route for the average investor—simple, low-cost index funds. While “the sage of Omaha” is referenced in the article, Warren Buffett’s bias toward index funds is conspicuously avoided in the commentary. Buffett has noted in his annual reports the average investor would be better off avoiding Wall Street and investing in index funds (excluding Berkshire Hathaway Inc. stock, which has outperformed the averages for decades). Similar to most articles published by the money management community, two sentences in the article, in particular, advocate the need for the average investor to use a professional investment adviser: “Smart investors rely on investment professionals who are highly knowledgeable about behavioral finance—a discipline that carefully analyzes how individual and group psychology influences investor behavior and market trends” and “As many CPAs already know, all it takes is the right adviser—and the right tools.” The inference is, properly selected, active investment advisers have the answers to produce results the average person can’t possibly attain. This is just not so. The average person has at his disposal the means, through index fund investing, to outperform the vast majority of both mutual fund managers and professional advisers, for minimal fees. Unfortunately, while the article would like the reader to conclude that seeking professional advice is the “right tool” to cure poor investment performance, statistical evidence points to the contrary. More than 80% of mutual funds and money managers fail to outperform the averages such as the S&P 500, Wilshire 5000 and Morgan Stanley emerging markets index—in almost any critical period analyzed. And while they fail to produce, they charge banner fees (over 1% of assets), win or lose. Would you buy a refrigerator or car if the failure rate was predicted at 80% over the life of the appliance with no chance for a refund when the gadget proved to be a lemon? Try getting your fees back from a mutual fund or money manager that produces subpar results—which most do. While there is a place for stellar active managers in some portfolios, the power and track record of indexing has proven, simplistic as it is, to be the most effective place for the average individual’s investing assets. A perusal of Vanguard’s Web site, in particular the material put forth by the founder, John Bogle, further documents the power of indexing. Charles Schwab is also a proponent of the concept. I can understand why much of Wall Street and professional advisers don’t want to tout the real story. The highly paid investment professionals would be flipping hamburgers instead of wallowing in the Hamptons on warm sunny weekends. I think the JofA does an excellent, consistent job in publishing high-quality content, but why it continues to present articles implying active management is the answer for the individual investor requires some explaining. Robert Preston, CPA A Student Member’s Views on the
Profession Enron and the other companies that collapsed from, among other things, ethics scandals and the professionals who apparently let down the accounting profession have not steered me away from majoring in and pursuing a career in business—I just want to work harder and better. And I think this attitude sums up my entire generation’s sentiments when it comes to adversity. Today more and more students are majoring in business and accounting. Until recently, CPAs were considered boring. Then they hit the front page of every newspaper from The New York Times to Small Town Monthly. Suddenly people realized that accountants were right in the middle of everything that goes on in a business—the scandals and dirty deals in the business world brought more attention to the accounting profession. The demand for CPAs now officially rivals that for Cabbage Patch Kid dolls in the early 1980s. It took billions of dollars in scandals, but now the American people and, most important, the American college student, see how good becoming an accountant really can be. I have always known: My father is a CPA. Marc Cangemi
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