After Enron

New York State Needs to Reform Some of the Rules of Accounting

As Congress continues to investigate the Enron collapse, lawmakers are trying to find out who in the company knew that trouble was brewing, and when they knew it.

But there is another side to this inquiry that is also gaining deserved attention—namely, what can be done, at the national and state level, to prevent a recurrence. The Bush administration and Congress are examining the issues from a national perspective. But what of the state?

To his credit, state Sen. Kenneth LaValle, chairman of the Senate Higher Education Committee, has been gathering testimony on that front. In hearings held in New York City, Feb. 6, three top CPAs, including Marilyn Pendergast of Urban, Kahn & Werlin of Albany, made a persuasive case for reform.

Here are some of their proposals, made as representatives of the New York State Society of Public Accountants:

Require mandatory peer review programs for all registered CPA firms in New York that audit.

No longer permit firms to choose who will review them, but instead require them to choose from a pool of certified peer reviewers in conjunction with independent oversight.

Hold accountable CPAs that work as financial statement preparers, accountants and internal auditors in the management of businesses and other organizations. At present, these CPAs are not subject to state regulation or registration. The NYSSCPA wants them held liable to state sanctions for breaches of ethics.

Just as important, the group notes that New York’s present system of having the State Board of Public Accountancy serve in an advisory role to the Regents should be reformed. The board should be invested with more power, independence and stature, the group says, and have more resources to fulfil its role as a public watchdog.

New York’s public retirement fund lost $58 million as a result of the Enron scandal. Moreover, the meltdown occurred on Wall Street, shaking investor confidence in the market.

Both developments make it imperative that New York now act swiftly to ensure that such a debacle will not happen again.