The failure of companies such as Enron and WorldCom is attributed to the CPAs’ improper auditing of the books. As a result, Congress is attempting to micromanage the accounting profession. Our profession is being blamed because of Congress’s own failure to provide the resources to the SEC to review the reports public companies submitted.
The unfortunate conclusion being drawn from the vast decline in stock values these days is that the CPA is the culprit. But it is management that perpetrates these major frauds. Congress is questioning the auditor’s independence because he or she is being paid by the client. In his or her review, the CPA must rely on the company’s internal auditor, who has the responsibility for disclosing irregularities and fraud. Although professional standards for internal auditors require that they be independent of company management, where were they when irregularities and fraud occurred at Enron and WorldCom? In those cases, was their independence compromised by management? Who is the culprit? Congress should have determined that before blaming the CPA profession.
For as long as I can remember, the accounting profession has been trying to find its role in auditing for fraud. This type of audit requires vast resources and skills, which many large firms lack. A CPA firm would have to charge exorbitant fees to do both internal audits and financial audits.
Auditing for fraud is a gamble. You can’t audit every transaction, so you use sampling and concentrate on those areas most susceptible to fraud—mainly property, personnel and money. There, skill is needed in the selection process. Congress should be questioning the internal auditors instead of the outside auditors.
The AICPA, of which I am a former council member and which just honored me for 40 years of membership, should speak out in support of the profession, and explain what financial audits entail.
My experience with Arthur Andersen when I was in government was an excellent one. The firm impressed most government auditors and we find what happened unbelievable. What I saw was that one Andersen partner didn’t do his job, and now the public blames the whole accounting profession. That is wrong.
Sidney S. Baurmash, CPA
Pompano Beach, Florida