By Jay Dismukes

The strong safety net that the accounting profession provided for their clients decades ago began to fray in recent years. The passage of Sarbanes-Oxley and the subsequent creation of the Public Company Accounting Oversight Board (PCAOB) should help the profession begin to mend the net, a founding member of the board said last month.

Referring to the corporate scandals that have dogged the profession and some of their public company clients over the last two years, PCAOB member and acting chair Charles D. Niemeier, keynote speaker at the May 15 New York State Society of CPAs 106th Annual Election Meeting and Dinner, told the large audience of new and veteran CPAs that the complex business structures of the new millennium have grown “so expansive that our net can’t work.”

The net’s ability to catch items that can fall through the cracks is further compromised by the lack of a quality that is closely associated with the accounting profession: integrity. If practitioners fail to adhere to the ethical and independence standards that have come to define the profession, Niemeier said, they give the public and their clients the “appearance that there is a net when there really isn’t one.”

Because businesses have moved beyond the traditional financial reporting system, with “brick-and-mortar” assets no longer a clear indicator of the value of many companies, Niemeier suggested that the current methods for financial reporting need to be reassessed by the accounting community.

“We need to look at our whole financial reporting system,” Niemeier said. “The accounting profession has to find a way to keep up with evolving businesses.”

Though his comments regarding the responsibilities and intentions of the PCAOB were kept to a minimum, Niemeier said the board plans to begin working with other countries to establish greater cohesion for accounting standards throughout the world and to help ensure a seamless financial process for businesses that are expanding beyond national borders.

He also touched on the profession’s principles- vs. rules-based debate that has been bandied about in recent months, stating that he believes there already is a principles-based system in place, with rules that provide for “consistency and certainty.” Niemeier also gave a brief lesson in Accounting 101, noting that the profession needs to apply more common sense when auditing the books of its clients. If a result is illogical or inconsistent with the information on which it is based, it demands further investigation, he said.

The PCAOB officially took effect in late April. On May 21, the Securities and Exchange Commission said it had formally approved the appointment of Federal Reserve Bank of New York CEO William J. McDonough to head the board. He took office on June 11. Among its other tasks, the board will set auditing rules, bringing to a close the profession’s practice of setting its own standards.

The NYSSCPA’s 106th annual dinner also featured speeches by outgoing Society President Jo Ann Golden as well as incoming President Jeffrey R. Hoops, who spoke about the importance of bringing more minorities into the CPA ranks.