Attorneys Talk about Representing Accountants in the Era of Enron and Other Corporate Scandals

By Dwares, David R.; McGuane, Melissa M. | The CPA Journal, March 2003 | Go to article overview

Attorneys Talk about Representing Accountants in the Era of Enron and Other Corporate Scandals


Dwares, David R., McGuane, Melissa M., The CPA Journal


CPAs historically have ranked among the most trusted professionals. In a matter of just months, however, as a result of Enron and other corporate scandals, accountants joined the ranks of attorneys, politicians, and used-car salespersons at the bottom of Americans' "Who Do You Trust?" list and as the butt of many a joke. Indeed, in a recent poll conducted by the BBC, road sweepers, pub landlords, and plumbers, among others, all were more respected than accountants. This fall from grace is similarly reflected in the news media, which increasingly refer to accounting as an industry rather than a profession.

For the foreseeable future this sudden attitude shift will continue to have a profound effect on the defense of accountants in malpractice actions. Attorneys know that public perception of accountants may play as much, or possibly more, of a role in the ultimate jury verdict as the specific facts of their case. Indeed, to ignore such public perceptions would do an accountant-client an extreme disservice. Is the appropriate response, then, simply to duck and try to find cover: that is, settle at any cost instead of risking a trial at which a jury consisting of members of this disgruntled and angry public holds the accountant's professional and personal fate in its hands? Certainly not. Instead, efforts should be made to develop a better understanding of the true parameters of the current public perception of the accounting profession and then use that knowledge to craft a defense that lets the accountant be judged on the merits of the case at hand instead of the past actions of fellow professionals.

In addition to the recent corporate scandals, the drastic change in public opinion also can be explained by an increased awareness of the inherent conflicts of interest that arise when auditors also act as consultants for their clients.The hit that the accounting profession has recently taken is not unlike the gradual erosion in public confidence in other institutions, including the media, politics, and even the Roman Catholic Church. True, businesses and professions have weathered crises of confidence in the past.The savings and loan crisis in the 1980s comes immediately to mind. But the current blow to the accounting profession may be different. Jurors today feel personally touched by what has been happening. They have seen their 401(k) and 529 plans devastated by the actions of corporate America.This animosity seems to transcend gender, race, and class. With so many people now owning stock in some form or another, we are dealing not only with moral outrage, but also an equally powerful self-interest.

A recent survey conducted by the Minority Corporate Counsel Association and DecisionQuest gauged juries' reaction to recent accounts of corporate misconduct. A startling 73% of individuals surveyed believe auditors do what their clients tell them, even if that recommended conduct is dishonest. A recent USA Today/CNN/Gallup Poll revealed that an almost identical percentage of respondents believe that large-corporation financial audits that hide damaging information about the company were at least "somewhat widespread." An alarming generalization? Yes. Erroneous? Absolutely. Suffice to say, auditors have been reminded of the importance of professional distance between themselves and their clients. The difficult question, of course, remains: Where do accountants that may be accused of malpractice and the attorneys who provide their defense go from here?

Among the measures that the accounting profession has taken to address these problems and to restore favorable public opinion, limiting the types of consulting services accounting firms may offer to companies whose financial statements they audit is favored by the AICPA. The Sarbanes-- Oxley Act of 2002, among other things, provides for a new body, the Public Company Accounting Oversight Board (PCAOB), to be appointed by the SEC. …

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