SEC's Pitt to Auditors: 'You Will Pay'
The Securities & Exchange Commission has launched a formal investigation into the recent collapse of energy giant Enron Corp. and has subpoenaed records from Big Five firm Andersen in relation to that investigation. In the December 24 issue of Business Week magazine, SEC Chairman Harvey Pitt discusses the investigation and the role the SEC expects to take in preventing such problems in the future.
In his interview with Business Week, Mr. Pitt emphasizes that the SEC is focused on aspects of the Enron demise that affect investors and "whether proper compliance with all our securities laws and rules applied."
He also describes the SEC's responsibility as assuring people that situations like Enron are not likely to reoccur. In addition, he discusses the SEC goal of creating "a system of financial reports that nonexperts can read, digest, and understand."
In his interview, Mr. Pitt makes special mention of his opinion that the problems that exist with Enron and with auditing in general are not a function of auditor independence, but "go to the integrity and structure of internal control systems and the audit process itself." Where auditors are responsible, however, Mr. Pitt follows a hard line: "If you violate the law, you will pay for it, and we will be aggressive."
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"AICPA Relegated to Quasi Agency of The SEC" ... WSJ April 5, 2003
The mega losses that Enron has “outsourced” to institutional investors, their auditors, the AICPA, and global financial markets are going to prove to be staggering. The financial costs alone (the first wave) will be sure to nearly top all of such costs we have ever experienced. The lost market value of the Enron stock along with the ensuing litigation costs of a pending University of California led class action law suite should prove to be a tidy tuition for those willing to learn from the class.
However it is the second wave that is most tragic. As a self regulating profession we have just told the investment world that the tools of our trade (financial judgments) can not be trusted. What now is there to stop the political forces of Washington DC to begin to relegate our society to that of a twice removed agency of the SEC? The CPA Vision Project 2011 was once a hope … and now perhaps a diminished dream.
The Enron “symptom” is by far the first and it won’t be the last unless we learn what professional courage really means and begin to “think out of our self-reflective box”. “Financial Metrics” reporting to the exclusion of “Human Metrics” reporting for publicly traded companies is parochial 19th Century thinking. This one issue will stand out as the single most shortsighted and embarrassing moments in the history of the AICPA. It will become the source of our professional demise unless our leaders start thinking and acting like leaders.
Neither Enron nor Anderson is the problem. We as a society bares 100% of that responsibility. We really don’t want to report on the underlying corporate attributes of a healthy or a sick company. And we cowardly avoid our reporting responsibilities because corporate America does not want certain information openly reported to the real owners of publicly traded companies. As it now stands – Enron being only one example– our financial reports should exclaim “Buyers be ware … year end audited financial statements do not fairly report the total state of health of the companies held in your portfolio”.
Politics will relegate our society to a quasi-governmental agency unless someone takes some swift and decisive action. We have an incredible opportunity right now to harness the current political energy of congress to pass legislation giving the AICPA leadership the teeth they need to revise the scope of reporting standards to include the “Human Metrics” side of the equation on all publicly traded corporations.
For a specific approach to resolving the two core problems that sire these “symptomatic issues” feel free to contact Mr. Carson at LJohnCarson@MSN.Com
Andersen
How does Mr. Pitt know that auditor independence was not an issue if they just began the investigation? Seems like a strong statement without all the facts.