System Needs More Than Band-Aids

BY PETER H. WILSON

I take exception to the letter “ Sees Profession as Scapegoat ” ( JofA, Dec.02, page 15). The Enron debacle did not result because “one Andersen partner didn’t do his job.” If one Andersen employee could cause the magnitude of grief that resulted from the Enron situation, there are more fundamental problems involved than we as a profession can ever hope to solve. An entire floor of auditors worked exclusively on Enron all year. To think the entire blame rests with the single person who occupied the corner office on that floor is unreasonable.

In the best case, the Enron collapse was the result of a single audit team’s failure. In the worst case, it was the fault of the profession.

Also, I would like to see some new thinking with respect to fraud. The letter correctly pointed out that most audits focus on “those areas most susceptible to fraud—mainly property, personnel and money.” This indeed represents the traditional view of fraud, and it has served the profession well in the past when most corporations were single, isolated entities that could be audited as a whole. The modern corporation, however, is a vast maze of interrelated entities. I think related-party transactions are a growing area in modern-day fraud, and the profession is ill-equipped to audit these types of deals.

I find the WorldCom case even more troubling than Enron for CPAs. WorldCom was a simpler company than Enron. It was in the business of building a communications network and providing services on it—a simpler business model than Enron’s creating a market for commodities trading. The fraud committed by WorldCom was in the more familiar area of property, not the complex area of related-party transactions. By all reports, WorldCom overstated its property—and thereby understated its expenses—by $9 billion. How did the auditor fail to detect that much missing property? Even the most cursory and poorly executed audit should have detected a fraud of this magnitude.

Clearly there are major problems with the accounting profession. These are not isolated cases of single auditors failing to do their job or of corrupt corporations misleading overly trusting auditors. These are spectacular failures of the system as a whole. A few Band-Aids may hold the system together for a while, but I hope that we as a profession study the events and resolve to never allow these mistakes to happen again.

Peter H. Wilson, CPA
Houston

SPONSORED REPORT

Keeping client information safe in an age of scams and security threats

A look at the Dirty Dozen tax scams and ways to protect taxpayer information.

TECHNOLOGY Q&A

How to create maps in Excel 2016

Microsoft Excel 2016 has two new mapping capabilities. J. Carlton Collins, CPA, demonstrates how to make masterful 2D and 3D maps in Excel 2016.

QUIZ

News quiz: IRS enforcement, a hot job, and audit value

The IRS’s 2016 Data Book, a “hot job” of particular interest at this time of year, and insight into how executive and audit committees view the insights from financial statement audits received attention recently. See how much you know with this short quiz.