Shatter This Global Accounting Oligarchy

Sunday Business (London, England), January 20, 2002 | Go to article overview

Shatter This Global Accounting Oligarchy


SHAREHOLDER, I cannot tell a lie, I did it with my little shredder." Not even a Mark Twain-crafted version of Washing-tonian frankness can save the accountancy profession's lock on its dripping roast combination of audit and consultancy practices now.

The "he did it in Houston with his little shredder and we knew nothing" version peddled by Arthur Andersen's new boss, Joseph Berardino, may have done for Andersen's credibility already. The reputations of the rest of the Big Five have been tarnished in the process.

Time and a congressional investigation will tell whether senior figures at the firm knew or not. It certainly spells the death-knell of the Big Five monopoly of seats on the gravy train that statutory international accounting requirements have provided for decades.

In the wake of the Enron fiasco the cry is up from the usual suspects - opportunist consumer groups, populist politicians and heavy-handed regulators - that tighter regulation is the answer. On 17 January, Harvey Pitt, chairman of the US Securities and Exchange Commission (SEC), called for a new private-sector regulatory board with "real teeth", saying: "The potential loss of confidence in accountancy firms is a burden our capitalist system cannot and should not bear."

He is barking up two wrong trees, as befits someone whose New York law firm represents the interests of the Big Five. The loss is not potential: it has happened; and solutions are more likely to be found in making the market work better rather than in more controls.

Tighter regulation of a system of supervision already riddled with conflicts may postpone the next Enron scandal - burying it more deeply, more likely, as companies and conflicted auditors learn to avoid the bear pits they dug for themselves in this debacle. Can any company with 881 offshore subsidiaries (Enron had, among others, 692 in the Cayman Islands plus 119 in the Turks and Caicos, presumably not purely because its executives liked sun and sand) be assumed to be playing with a straight bat?

The annual audit of public companies' accounts is an international statutory function. Shareholders appoint the auditors, companies pay them. Much pious piffle is talked about the auditors' independence being sacrosanct, but what shareholders will reappoint an auditor who shouts "scandal" from the rooftops, sending stock values crashing, or downgrading bond ratings? "Thank you for your services, here's the cheque. Call us to account again next year" is not the likely response, but it is the one the present system expects.

Calls for the compulsory rotation of auditors on a seven-year basis are no answer. Would an auditor finding a raft of off-balance-sheet items have an incentive to squeal in year one? Who was prepared to point out that the UK's saintly GEC ran accounts that did not pass the US's stringent corrupt-practices test, forcing the now-vilified Marconi to make its US buys in cash, not paper?

To keep the fees rolling in accountants have tried to live with the conflict.

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