Rebuilding Trust

It’s clear, however, that restoring investors’ and regulators’ eroded confidence in auditors won’t be a cakewalk. To make matters worse, Ezzell says, critics of the profession don’t distinguish between auditors of public companies and those of small, privately held businesses. He fears this could lead to laws and regulations that inappropriately and illogically apply to all auditors.

That’s what makes Ezzell’s accession to the chairmanship both a challenge and an opportunity. True, his big-firm pedigree could alienate small firms. But if he succeeds in protecting their interests and supports policies that address other members’ needs as well, practitioners of all stripes are likely to rally around common values and professional aspirations. A stronger, unified profession could better repair the other bonds of trust—with investors, clients and the government—on which all practitioners’ success depends.

RESTORING FAITH IN CPAs
Since 1993 Ezzell has headed Deloitte & Touche’s government relations program in Washington, D.C., making sure that regulators and members of Congress understand and fully consider the profession’s perspective on critical issues. That role originated when Ezzell became chairman of—and his firm’s representative to—the Accountants’ Coalition, a task force that works closely with the AICPA and state societies on legislative and regulatory issues. With the Institute, the coalition communicated the profession’s positions on tort reform to federal legislators writing and voting on the Private Securities Litigation Reform Act of 1995 and the Securities Litigation Uniform Standards Act of 1998. These federal laws reduced public companies’—and their accountants’—exposure to frivolous lawsuits investors filed after corporations or their representatives had issued revenue projections or other statements that ultimately proved inaccurate.

Ezzell is well aware of the various hats AICPA members wear. He was chairperson of the AICPA Group of 100, the accountants’ legal liability committee and the Institute’s federal legislative task force. He has worked with state societies to amend the Uniform Accountancy Act and with CPAs in companies whose financial statements Deloitte & Touche audits. Ezzell believes this first-hand knowledge enables him to better represent all members. And as chairman, he aims to renew the government’s and the capital markets’ trust in the profession by conveying to them CPAs’ ongoing dedication to providing valuable services in a reliable, ethical manner.

A TIME FOR UNITY
Ezzell’s experience gives him a broad perspective. “I began my career with Deloitte & Touche (then Haskins & Sells) in 1973,” he recalled. “They assigned me to a 30-person office in Greensboro, North Carolina.” Ezzell had just graduated from the University of North Carolina at Chapel Hill with a bachelor’s degree in business administration and accounting. For several years he provided audit and tax services to new, growth companies. “Practicing in that office was very similar to working in a small firm,” he said, “so I understand that world and the challenges CPAs in it face each day.”

But few practitioners have worked at both ends of the size spectrum and understand the different perspectives. “It’s easy, with a diverse membership, for one group to find itself at odds with another,” Ezzell continued. “I recognize the validity of individual concerns,” he said, “but we won’t reach our common goals— for example, restoring our reputation—unless we work together.”

Small firm CPAs worry in particular about a potential “cascade effect,” in which state laws influenced by the Sarbanes-Oxley Act would impose oversight provisions on all auditors, whether or not they audit public companies. The act requires state regulators to determine whether such added requirements are necessary. “But there’s no good reason to impose additional regulations on small firms,” Ezzell said. He wants to maintain the delicate balance between collaborating with reform and allowing it to run amok. “We want to protect small firms’ right to provide trustworthy business advice to small companies,” he added. “It’s critical to their success and to that of the economy.”

Toward that end Ezzell aims to correct misconceptions in government circles about which segments of the profession need more oversight and which don’t. “Some politicians don’t understand the difference between investing in a public company and in a private company, where the investors are insiders—for example, family members—who can get all the financial performance data they want,” he said.

In contrast investors in a public company have a less intimate relationship with its management; they need auditors as their objective intermediaries to confirm the validity of the company’s financial statements. “That requires a few more safeguards,” Ezzell said, “and Sarbanes-Oxley has built them into the system.” But, he added, private-company investors don’t need such stringent protections, which would unnecessarily restrict smaller firms and their small-company clients, who can’t afford a full-time controller, treasurer, CFO, chief information officer or accounting manager.

“Small firms and big firms don’t have the same needs or serve the same kinds of clients, so they shouldn’t be regulated in the same way,” Ezzell said. “We have to get that message across; it’s not well understood.”

COOPERATION ON THE HILL
Influencing lawmakers preparing the Sarbanes-Oxley legislation kept Ezzell extraordinarily busy this year, but he’s pleased with the results. “Some in Congress wanted to require public companies to change their audit firm every five years so the auditor’s independence wouldn’t be impaired,” he said. But Ezzell and others, recognizing a gap in legislators’ understanding, explained to them how firms already get “fresh looks” at their clients by rotating—at least every seven years, as required by the AICPA’s SEC practice section—the audit partner assigned to each client. They also pointed out that ongoing personnel turnover in each firm’s audit staff produces a similar effect and that academic studies have shown there’s greater potential for auditors to miss something in the early years of an audit when they haven’t had sufficient experience with the client’s business. “We persuaded Congress to eliminate the firm rotation proposal from the final bill,” he said, “and that resulted in more reasonable, informed legislation.”

ALLYING WITH STATE BOARDS
For several years the Institute worked closely with the National Association of State Boards of Accountancy (NASBA) to update the Uniform Accountancy Act (UAA). Ezzell said the Institute was satisfied with the latest version of the UAA but disappointed that many states haven’t implemented it. “We’re getting too much deviation,” Ezzell said. “I understand each state has its own requirements. But today CPAs use technology to transcend state lines more easily than ever before, creating a national—if not global—marketplace, and that argues for greater UAA consistency. We need a system that protects the public while being as uniform as possible across state lines,” he concluded. “I don’t think these two goals are incompatible.”

PREPARE FOR THE FUTURE
Despite the number of new challenges facing the profession and Ezzell, other issues predate his arrival and continue to require attention.

Recruitment. To Ezzell, even bad publicity can have positive ramifications. “The media’s extensive coverage of Enron has made people more aware CPAs do audits, even if the public doesn’t quite understand all that’s involved,” he said. “Our role in the capital markets is more visible now, and that attracts people to the profession.” Meanwhile, the bursting of the tech-stock bubble reduced the allure of other careers. “Wall Street isn’t offering million-dollar hiring bonuses any more, and no one’s retiring at age 28 with bushels of options,” Ezzell said.

Diversity. To make accounting more attractive for those in the profession as well as for those contemplating entering it, Ezzell plans to continue his personal commitment to improving opportunities for women and minority-group members. “Several years ago,” Ezzell said, “Deloitte & Touche found that addressing the needs of women in the workplace was not only the ethical thing to do but it made business sense as well.” The result: lower turnover and greater enthusiasm. He followed that path in making AICPA and Group of 100 committee assignments as reflective of the profession’s demographics as possible. “We’ve improved, but we still have a long way to go—so I’ll continue to focus on diversity issues,” he said.

Standards. Moving U.S. accounting standard setting toward broad principles and away from specific rules is a worthwhile—but difficult—objective, Ezzell said. He believes such a step would elevate the quality of financial reporting, and he intends to cooperate with the SEC, FASB and the IASB in promoting it. Ezzell also said he joins SEC Chairman Harvey L. Pitt and FASB Chairman Robert H. Herz in supporting efforts to harmonize U.S. and international accounting standards, thereby improving cross-border capital flows.

Technology. Ezzell said he continues to be a strong proponent of XBRL, which will facilitate development and the ultimate implementation of the more extensive and easily shared “comprehensive model for business reporting” proposed by the Jenkins Committee in 1994 and supported by the AICPA and other groups.

HIT THE GROUND RUNNING
In the long term, the aspect of Ezzell’s experience that could prove most valuable to members is his ability to represent the profession before lawmakers and regulators. “We’re not finished on Capitol Hill yet,” he said. “There’ll be congressional hearings next year on the overall effectiveness of the Sarbanes-Oxley Act and how well firms are complying with it.” No doubt members, especially those from large and small firms and from industry, will be watching closely.

Only time will tell if Ezzell will be able to overcome dissension in the membership and bridge the gaps between the profession and those who rely on or oversee it. But he feels the naturally inclusive, communicative style he’s honed working with committee members, state societies and Congress will help him develop consensus and reestablish trust—two precious commodities the Institute and all CPAs need right now.

ROBERT TIE is a senior editor with the Journal of Accountancy. Mr. Tie is an employee of the American Institute of CPAs. His views, as expressed in this article, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.