Seventeen Accounting Procedures That Put Credit Managers at Risk
Zeune, Gary D., Business Credit
It took the terrorist attacks on September 11, 2001 to prove our national security measures were inadequate. It took the bankruptcy of Enron, the largest in U.S. history, to prove that the fundamental auditing processes aren't up to the task of protecting users of financial statements. Enron isn't the only failure, just the latest and largest. Remember Sunbeam, Waste Management, Global Crossing, Xerox (which recently paid a record $10 million fine) and Leslie Fay (the CFO has been sentenced to prison for 9 years), just to name a few?
Enron represents a "shock"' to the system. How could a company worth $80 BILLION go bankrupt in less than a year? Enron collapsed because it lost credibility. Investors, regulators, creditors and auditors simply stopped believing what it said. Has it ever occurred to you that your personal and company credibility is the only thing that gives your work value? Most commentators think the complex transactions-the off-balance sheet deals-Enron engaged in, brought it down. Wrong. Many companies, such as investment and commercial banks, are built on complexity. BUT, the companies' financial statements are transparent, and the market takes the financing techniques into account and values the company accordingly.
So, the first lesson is to NOT do as Enron did. Do what's right-no matter how much it hurts. Of course, that's easier said than done, but I digress. Back to how audited financial statements put you at risk.
Think credibility isn't important, that the underlying fundamentals of the accounting profession aren't under the microscope? Consider just a few of the recent headlines:
* "Can't Executives Be as Honorable as Our Soldiers?" WSJ, March 12, 2002
* "The New Business Casual: Prison Stripes," WSJ, March 13, 2002
* "Is Accounting Dead?.. These days, accounting smells...Perfectly legal accounting tricks can hide big problems." Forbes, March 4, 2002
* "Investors' New Worry: Auditor Risk-- Who's auditing the books?" Business Week, January 25, 2002
* "Stocks Take a Beating as Accounting Worries Spread Beyond Enron," WSJ, January 30, 2002
* After Enron, New Doubts About Auditors," The New York Times, December 5,2001
* "Tweaking Results Is Hardly a Sometime Thing-Many Firms, Under Diverse Pressures, May Play With Numbers," WSJ, February 6, 2002
* "Stocks Plummet Amid Accounting Fears," WSJ, January 29, 2002
* "SEC Warning: Playing By Rules May Not Ward Off Fraud Issues," WSJ, February 12, 2002
* "Under the Microscope-After Enron, investors are looking more skeptically at companies whose bookkeeping seems confusing," Time, February 4, 2002
* "Can you trust anybody anymore?" Business Week, November 28, 2001
You can be the most technically competent credit manager around, but your abilities don't mean much if you rely on a work product that has inherent flaws. It's like finding out 2+2 (not equal) 4. Thus, you must do everything in your power to protect your company and yourself Let's explore a number of standard audit practices that put your company, and you personally, at risk.
Because of a string of high-profile failures undetected by auditors, demonstrating that the profession is incapable of regulating itself and sanctioning its own, the SEC has instituted an independent board to oversee the profession. How did the most admired profession get into this mess? How did audit work become so price sensitive? How did auditing become such a commodity that firms have resorted to non-- attest work, such as consulting, to stay in business? Answer: Accountants simply don't understand that just because the audit has to be done, that anyone thinks it's valuable. In my classes for CPAs, I ask several questions:
Q. When was the last time a client was excited that you were coming out to begin the audit? A: Laughter.
Q: How many clients do you have that would have the audit done if it werent required? …