February 2002

The Enron Situation: NYSSCPA Committee Assesses Public’s Perception, Impact on the Accounting Profession

To borrow a phrase from Howard W. Wolosky, associate publisher and executive editor of Practical Accountant magazine, the Enron mess is like the Energizer Bunny. It “keeps going and going.”

With that comparison in mind, it was only fitting that when Wolosky spoke to members of the Large- and Medium-Sized Firms Practice Management Committee on Jan. 24, the guest speaker wanted to know whether that mess has managed to hop into the members’ own professional backyards.

The members’ responses yielded as many questions as answers. David Rosenzweig, chairman of the New York State Society of CPAs committee, said the meeting served a valuable purpose.

“We need to talk amongst ourselves and see where we stand (on this issue). We as practitioners need to lead our leaders,” Rosenzweig said at the start of the round-table discussion. “I think they got to share their points of view and hear other people in the profession. This meeting helped shape their opinions and gave them an opportunity to express them to the Society’s leadership. I am hoping the leadership, the profession and the (Society) members will be united in their pursuit to maintain the integrity of the profession,” the chair said at the conclusion of the talk.

Wolosky noted that there probably is a public perception by some that there are many firms that go too far in their efforts to please a client that is a substantial portion of their practice.

NYSSCPA Executive Director Louis Grumet, who also spoke at the meeting, said damage to the accounting profession’s reputation over the Enron scandal may be temporary if there is a willingness to tackle problems directly and disclose them publicly.

“If this profession acts quickly…you can recover,” Grumet said.

And, just as quickly pointed out by some of the members, the Enron debacle—the largest business bankruptcy in U.S. history—has impressed upon many clients, their boards of directors and audit committees, the vital need for a tough audit.

“Clients will now understand why it is important to take a harder position (on their audits),” one member said. “We are now being more circumspect about what we issue today.”

Another committee member added that as audits become more valuable in the marketplace, the cost of audits will rise and, in turn, will help pay for the increased cost of insurance.

Members also discussed regulation and asked Grumet whether the profession should continue to monitor its own actions. The executive director noted that there is not enough sharing of information between accounting bodies and state boards, but he stressed that while improvements are needed, the profession, not the government, is in the best position to regulate because they possess the best resources for the job.

Finally, the committee addressed Enron’s effect on CPAs’ consulting services for attest clients, a function that has come under intense scrutiny over the last several months. The idea of an imposed magnitude ratio between audit and consulting work was discussed, too.

Grumet said he believes that the Enron situation will create a stronger profession. He said Enron has revealed the public’s high opinion of accountants and is “a wake-up call that will get us back to business and back to basics.”

According to Grumet, getting back to basics means taking a close look at standards, examining issues like peer review, continuing professional education and whether all New York state CPAs should be registered. Since the meeting, the Society has taken a public position on these issues and others pertaining to the regulation of the profession. (See the front-page story titled “NYSSCPA Testifies Before State Senate Committee on Post-Enron CPA Regulation.”)

“I think we need to take a vigorous stand…so that we keep the reputation of the profession as high and as profoundly clean as we can,” Grumet said.