Magazine article The CPA Journal

Ethical Accounting Practices and the Pressures on CPAs

Magazine article The CPA Journal

Ethical Accounting Practices and the Pressures on CPAs

Article excerpt

Most of the recent sordid stories of corporate scandals involve senior management and CFOs that have manipulated the books to make their companies appear more profitable. The independence of outside CPAs becomes compromised when management places pressure on them to accept such representations at face value. CPAs should not allow these pressures to blur the line of ethical, legal, and moral standards. A respected leading practitioner in the industry for decades, the CPA must remain above reproach and maintain an impeccable standard of credibility.

Credit grantors see thousands of financial statements and business plans from companies seeking working capital. Evaluating and financing these comparties requires attention to detail. To make sure their statements and business plans are meaningful, CPAs need to follow the golden rule: Always be factual and reasonable when evaluating a client's presentations.

That sounds simple enough, but nearly all the dot-com scandals were rooted in inflated projections, signed off on by accountants that should have known better.

Being ethical and moral in the business world should be the rule, not the exception. Of course, there are no laws broken or ethical lines crossed by a company being optimistic about its future. It is, however, the accountant's ethical duty to project honest and accurate information to shareholders and other interested parties.

I know of more than one case in which a CPA found himself at odds with a longstanding client who stubbornly refused to take the accountant's advice, insisting that inflated projections be presented. The accountant was unable to persuade the client to be more financially realistic. The accountant faced a dilemma: sign off on numbers he did not see as realistic, or risk losing the account. Unfortunately, the company was able to find another CPA willing to overlook the overblown projections.

That doesn't come as a total surprise. After all, the last several years have seen many instances where accountants serving public companies have been sloppy or worse. Afraid to rock the boat that was bringing in tremendous profits in the 1990s, many accountants were all too willing to overlook the simple "be factual and reasonable" rule.

While some companies-and by extension their accountants-may think playing fast and loose with the facts will help their businesses grow, the truth eventually catches up with them. …

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