Bank Scandal May Change U.S. Accounting Procedures

Article excerpt

What the savings and loan crisis failed to accomplish in the United States, a disgraced Luxembourg-based bank may now accomplish:

fundamental changes in the way accountants do their jobs.

Ever since the extent of the savings and loan mess became apparent, government officials have been debating the proper role of independent auditors in the fight against bank fraud.

Until recently, the accounting industry and business groups have thwarted one proposal after another that would have required some companies' private auditors to work more closely with the government.

But now, the scandal surrounding the Bank of Credit & Commerce International (BCCI) is magnifying the comparisons between regulatory safeguards in this country and in Britain, whose authorities took the lead in seizing many operations of the worldwide bank earlier this month.

In particular, policy makers are pointing to the unusual way the bank's auditors at Price Waterhouse helped to expose the scandal as proof that the fraud-fighting role of auditors in this country should be expanded along the lines of the British prototype, which itself was overhauled in 1987. And much to their surprise, the accounting establishment is putting up less of a fight than previous skirmishes over the same issue.

"Under certain circumstances, we can live with it," said Joseph Moraglio, vice president of the American Institute of Certified Public Accountants, espousing a relatively new position for the group.

What intrigues everyone on the two sides of the debate is the blistering report that the prominent accounting firm wrote about its client on June 27 at the request of the Bank of England, Britain's chief bank regulator.

Price Waterhouse partners in London not only detailed the apparent fraud, but also billed the client for the time they spent on the investigation, as is their right under Britain's new law governing bank auditors.

Such an investigative role would be unthinkable in the United States, where auditors prize client confidentiality and have limited legal and professional responsibility for blowing the whistle on clients.

But in Britain, and to an extent in Germany and Switzerland, it is an expected part of the job for any auditor who has banking clients.

"BCCI is probably the best example where you can say the Banking Act has worked, and worked well," said a Bank of England spokesman who would not speak for attribution. …