Recent accountability failures in the United States and other countries have led to bankruptcies and restatements that harmed countless shareholders, employees and retirees. People lost their investments, their jobs and their pensions. Not surprisingly, public confidence in the integrity of the financial reporting process and auditors took a big hit. In fact, one of the worlds largest and most respected accounting firms, and one that I worked at for many years (Arthur Andersen LLP) paid the ultimate price.
These failures involved not merely marginal companies with questionable reputations but prominent businesses and acclaimed executives. In some cases, corporate officers allegedly pressured their auditors to help cook the books. Although most auditors did not participate in such schemes, all too often the result was audited financial statements that inappropriately accelerated revenues, deferred expenses, artificially smoothed earnings and boosted earnings per share.
The accounting profession is not solely responsible for the scandals at Enron, WorldCom and other companies, but it does bear some blamepartly because of its reluctance to adopt long-overdue reforms. The silver lining to this sad situation is the opportunity to repair our professions tarnished image and better position ourselves to meet the challenges and opportunities of the 21st century.
Concerns about truth and transparency in financial reporting, however, are not limited to the private sector. Washington recently got an unpleasant wake-up call when two government-sponsored enterprises, Fannie Mae and Freddie Mac, announced earnings restatements. My agency, the U.S. Government Accountability Office, is committed to ensuring that such accountability failures do not occur in the federal government.
In the long run, the accounting profession needs to help modernize and expand financial and performance reporting models as well as attest and assurance practices, including the use of continuous auditing practices. More immediately, accountants and auditors must integrate best practices into their daily routines. They must also put the public interest before personal interest; do what is ethically right and not just legally permissible; be concerned about both fact and appearance, especially when it comes to independence issues; and recognize that continuous improvement is essential.
Maintaining public trust will require every participant in the chain of corporate reporting to put into practice the values of transparency, accountability and integrity. The publics expectations are high, and rightfully so. In this case, it will take actions, not words, to repair the damage that has been done. On each and every assignment, accountability professionals need to be thinking about how to maximize value and manage risk for their most important clientthe public. After all, that is what the P in CPA stands for.
David M. Walker, CPA, Comptroller General of the United States, heads the U.S. Government Accountability Office and holds a number of leadership positions in the profession, both domestically and internationally. His previous experience includes serving as Assistant Secretary of Labor for Pension and Welfare Benefit Programs and as Public Trustee for Social Security and Medicare, as well as in various audit, consulting and leadership positions at Arthur Andersen, Price Waterhouse and Coopers & Lybrand.