Mr. Pitt ably defends the idea that consulting with auditing enhances the woork product rather than diminishes it.

The White House and key Republicans have endorsed Mr. Pitt's plans. As one Andersen employee stated from Asia, "You don't kill the whole village if you can't find the one that stole the goat."

This site (accounting web) has an excellent synopsis of his testimony. Two key elements are his opposition to auditor rotation and opposition to restriction on consulting (except for outsourcing internal aludit and IT consulting).

An observation about GAAP comments, GAAP was never "tick-and-tie, do-this/do that." That would be GAAS, not GAAP.

"Independent auditor" is the quintessential oxymoron.

NYU's Baruch Lev had a great column on the editorial page of the Wall Street Journal earlier this week. He recommended that Andersen separate itself into several industry-specific audit firms. I doubt that AA's executive egos can accept that level of focus in their business, but it struck me as a sensible and potentially valuable alternative.

Last night C-SPAN reran Harvey Pitt's appearance yesterday before the Oxley Committee. Pitt argued that GAAP needs to be less about tick-and-tie, do-this/do-that, 1-2-3 steps and much more about judgment. Now there's an idea: auditor judgment. He also asserted that auditors have the responsibility to stand up to their clients when management's version of GAAP is loony.

Pitt's previous life representing AICPA and Big Five firms may yet compel him to do the right thing. We can always hope.

Concerning your observations about GAAP, I may be wrong, but it is my understanding that Enron's original statements were not prepared using GAAP. I believe that is the problem, they were not in accordance with GAAP as originally issued!

I have read that Enron issued common stock to an spe for notes and then erroneously recorded the notes as assets rather than as contra equity accounts.

It is also my understanding that three spes were unconsolidated which should have been, since Enron still retained liablilty, in violation of GAAP.

If GAAP had been adhered to, I am not sure Andersen would be suffering such stress today.

Second, I don't get it, and nobody here with an opposing view has addressed it adequately. Again: if the auditor stands behind GAAP as the sole authority and shield, even if proper application of GAAP results in materially distorted statements that no longer 'fairly represent the financial condition' but attests that they do and issues an unqualified opinion anyway, of what good is the audit and opinion?

It seems so simple. All the public (NOT just investors, but also banks, suppliers / creditors, etc.) want is to know that the financial statements (attested to with an unqualified opinion) are materially complete and accurate, and contain all the relevant information to make sound decisions.

Basically, it simply means that (1) income / profit / assets are not hidden or exaggerated (otherwise implying possible fraud, or tax avoidance or evasion); and (2) expenses / losses / liabilities or risks are not hidden (otherwise implying things look a lot better than they really are). Once an auditor establishes GAAP was followed, the final test should be, given all they know (which is key! And AA knew about and blessed most of Enron's schemes), do the statements fairly represent the financial condition? How hard could it be?

It seems the real issue is that the audit culture is one where we want to avoid the last part - the judgment call - in order to placate the client. In doing so, auditors like AA THOUGHT they could simply stand behind the 'shield' - the proper application of GAAP - and be held harmless AND keep the client and fees! We all now know differently from this unfortunate example. No company has ever survived indictment in 212 years.

We don't need more regulation. We simply need to apply good judgment to survive in the court of public opinion, as this situation teaches us. And those that don't will go down in flames. True independence will always be an illusion regardelss of controls or regulations, simply because somewhere, money changes hands.

Is it fair to the rest of the employees? No, but it happens all the time. The firm and its ee's are inseparable, that's reality. When any organization goes down, it's almost always due to the actions of just a few management people, but all end up suffering for it. I've been through 5 mergers myself, most due to mismanagement and losses. Not my fault, and it's not fair, but when you see the implosion coming you look out for yourself and run - not walk - to the nearest exit.

I won't call GAAP a fraud. I call it fiction. It doesn't comport with economic reality. If it did, I'd be out of business. So I'm grateful every day that GAAP's inadequacies allow me to earn a ridiculously good living.

In 27 years on both sides of the desk--as a CFO and as an independent CPA--I have never met an auditor who understood the business whose statements s/he was purporting to audit. Maybe I've led a sheltered life in that respect. But I doubt it.

The first place I look to see if the auditor has retired on the client's payroll is the 'Management Letter.' I have yet to avoid having a belly laugh at the inadequacies of those documents. They are hilarious. In terms of their priorities, they remind me of the guy who worries about his hairstyle when his feet are on fire.

The Management Letters are a joke because (a) the auditors don't understand the business (certainly true in the Andersen-Enron case), and (b) all the auditor really cares about is maintaining the company as a client (also true in the Andersen-Enron fiasco). This has led me to favor term limits for audit firms. I think five years is about right.

It is sad that a once-great firm probably won't survive. But we in our profession have brought this mess upon ourselves. We have fought every attempt to reform practices that clearly work no long, if, in fact, they ever did. It began with the exemption for audit firms from class action suits back in '95. Then, when Arthur Levitt had a sensible idea (and I'm a Republican, incidentally), the profession tarred and feathered him.

What have the results been? Well, try this partial pantheon of horror stories: Enron, Baptist Foundation of Arizona, Cognitor, XYZ, IISBP, CPA2biz.com. The list of expensive and pathetic jokes will continue until or unless this profession cleans out the barn. The first step there is to fire the entire governing structure of AICPA.

We have become just another whiny, groveling special-interest group. We have squandered the one thing that made us different: public trust. By continuing to deny the AIDS-like contagion facing our profession, we jeoparidize its future.

We have failed to self-regulate responsibly.
Where I come from, we will get, and we will deserve, the heavy-handed over-reaction of Congress, driven by an outraged public whose trust we have trashed.

The profession I practice in still considers GAAP to be just what the words say, ipso facto generally accepted.

For those that assume what they have read in the papers is gospel, I would suggest the Monday NY Times for additional light. It has an excellent chronology of the Enron/Andersen scenarios.

Also, at this site is a summary of Andersen's response to the Federal indictment. I would encourage some to read it before making wild accusations about what Andersen or anyone else is guilty of.

Now I doubt Andersen needs my help. I am sure they are capable of defending themselves from overzealous prosecutors quite well. I will predict that the firm will successfully defend against the government. Given the current hysteria, it may well be a pyrrhic victory.

Sorry Jim, but I still believe in fairness and stand by my post.

In your 17 March 2002 @ 13:40 PM post you stated, "Finally, I honestly don't understand the attitude of fellow professionals passing judgment on Andersen before the facts are known. There is a concept called fairness that should be applied here".

When I attempted to assist you with your "understanding" you responded by pathetically attempting to guilt me into joining your pity party. You are not looking for honest understanding; you are looking for succor. You will not find it here.

Further, you attempted to twist my comments regarding the fraud we refer to as GAAP. I did not say that GAAP does not matter. What I said was that the letters GAAP no longer represent Generally Accepted Accounting Principles, but rather Guilefully Artistic Articulation Procedures. To elaborate, GAAP is no longer "Generally Accepted", but forced, and is no longer about "Accounting Principles", but is about reporting rules.

Nick and Mott are headed down the right road. I would encourage you to lace up your boots, hitch up your pants, and tag along. You just might learn something.

Jim Hudspeth,
Certified Fraud Examiner, Certified Public Accountant

As for generally accepted accounting principles, sorry but they do matter. When a firm's financials depart from GAAP, and the departure is material to the statements, there is either a qualification or an adverse opinion issued, period. I have never seen a firm that followed GAAP have misleading statements.

Let me help you with your understanding. The big bandits have been paying out huge settlements, claiming innocence, and sealing records for years, as was very recently done by Andersen in the Baptist case. Where there is no trial there is never "proof" of guilt - ever. Yes, there is a concept called fairness. In this situation it comes with an indictment attached. There will be a trial. We will know. That is fair.

As to GAAP. These letters once stood for Generally Accepted Accounting Principles. That was years ago. They now stand for Guilefully Artistic Articulation Procedures. Big difference.

Some think this thing against Andersen is a made up accusation (even though Andersen admits to it) - apparently a vast conspiracy by the media. Others think you blindly follow the rules no matter how distorted the results, and your responsibiity and accountability should automatically be absolved and the public doesn't have a right to think otherwise. Some think its unfair to take down the whole company for the acts of a rogue - as if an 'oops-I'm sorry it'll never happen again can't we just go on and forget about it' should be enough admission of a mistake to make up for the loss of billions in investments and destruction of the credibility of the entire profession.

We are in a world of hurt because we put ourselves there.

Rule 203 states in part "Rule 203 was adopted to require compliance with accounting principles promulgated by the body designated by Council to establish such principles."

Like all rules, Council recognized that 203 would not cover all circumstances all the time. It allowed for deviation in "unusual circumstances." Examples given were new legislation and or new forms of business transactions. I would submit that neither existed in this situation.

If one deviates from GAAP it must be clearly and adequately explained and noted as a departure, and that it is not "generally accepted." The burden of proof for appropriate treatment of the item (financials) will of course be on the one advocating departure, since by definition the departure will not be "generally accepted."

I would submit that departure from generally accepted accounting principles to obtain more accurate financials would be so rare as to be almost non-existent!

Finally, I honestly don't understand the attitude of fellow professionals passing judgment on Andersen before the facts are known. There is a concept called fairness that should be applied here.

In judging Andersen, I know it will be hard with our society of instant news and and instant gratification, but I would just like to ask everyone to wait until the facts are in. We don't know what documents were shredded nor how relevant they were. I would submit that every CPA firm in this country purges files of extraneous material at the end of an audit or review engagement.

I admit the circumstances do not look very good for the Houston office, but to destroy a firm of 80,00 employees for the actions of a few is mind boggling.

Lastly, I wish some of those posting would use a dictionary and look up the term industry versus profession.

Lastly to Mark, I don't think a new tax on our capital markets will be imposed by this administration, or any other. The idea of who pays for audits has been periodically revisited since 1933. It has always come back to the point that the primary beneficiary is the company being audited, as much as you may disagree with that philosophically.

And the AICPA. What a great campaign they have launched. They FINALLY are interested in the rest of the members. They are so interested in getting word to the public about the integrity of the CPA that the ad they placed in Sunday's Washington Post appeared in the OUTLOOK section and it ran in the CLASSIFIEDS section of the NY Post!!! Maybe the latter was their way of looking at where the profession is heading because of the AICPA's FOLLOWSHIP. As a side bar, let's face it, the AICPA protects the interests of the top 5 firms and all the rest are inconsequential. They don't give a sh*** about the next tier or the tier after that or so on.

I wish all of us luck in the future. I just hope the accounting industry is still around. Who knows, maybe this will revive the XYZ/Cognitor interest.

I think it would make much better sense to have the various stock exchanges which list public companies charging transaction fees which could be used to pay for audits of listed firms. This way an auditor could truly be independent.

As to the issue of consulting work performed for audit clients, this should depend on the nature of the work. Some 'consulting' work is best done by the audit firm, for example, taxes, certain legal work etc.

Ultimately, I believe the only way public accounting firms will be able to retain their integrity, will be to return to their roots -- audit work. Perhaps there needs to be legislation passed restricting what kind of work auditors can do. The only other alternative would be to say that CPAs should lose their government granted monopoly on the attest function, and open up the business to some real competition.

Let's face it, the number of college grads sitting for the CPA exam is declining, the 150 hour requirement has raised yet another artificial barrier to entry, starting salaries haven't kept up with other more glamorous professions, the AICPA is blind without a cane ... Do we need any more bad publicity? We need to act swiftly, or we will face either a government takeover of our profession, or worse still, its legislative ellimination. Please don't play ostrich, wake up now before its too late!

Will convicting Andersen of obstruction of justice, thus putting the nail in the coffin, create a solution to the problem? NO. It will take down one of the most respected and successful accounting firms in the world, thus leaving 28,000 U.S. employees looking for jobs, and create an industry where large public companies have few options when considering an auditor.

The Dept of Justice has failed to let Andersen witnesses testify before a jury, failed to look at the consequential effects of this matter, and most importantly failed to recognize that Andersen brought the matter of document shredding to the Department's attention. Now the Dept. is turning around and slapping them in the face with an indictment based upon evidence that they didn't even gather. I think it is absurd to indict an entire firm for the actions of 10-20 individuals.

Be that as it may. But once the avalanche starts rolling down the hill it's futile to stand in front of it. You just get out of the way, whether you're an employee or client.

Andersen has admitted to the extensive document destruction and obstruction. That's not even in question. Their issue is with who should get the blame - the whole entity or just the rogue, as they would prefer. I am saying that is a fine point, a detail, of no consequence. The damage is done, it's in the throes of death and all that's left is for the vultures to come and pick over the carcass. By its own choice its past and future fortunes follow that of Enron, and it prospects for survival are about the same.

As CPAs. we all know that GAAP is partly to blame. No set of rules can be kept so current as to anticipate every situation. When teams of highly paid professionals are given the task of figuring out how hide risks or assets, earnings or losses, etc. to 'stay within the lines' yet distort within their favor, as the auditor there are only 2 choices. You either use GAAP and not your better judgment as your defense (and hope you'll be held harmless, which we can now see doesn't work in court of public opinon) and go along; or object that if applied in such a manner, the statements no longer 'fairly represent the financial condition', and lose the client.

The fact that every CPA that is paid a fee for auditing implies that their opinion is for sale! When you think about it, you can't get around the fact that independence is an illusion. Only a disinterested, unpaid (but technically proficient) third party (e.g., a government regulator) could really render an unbiased opinion.

So... if we just stand behind GAAP without using our judgment, and this mess is determined to be GAAP's fault, then we all just passed an exam full of useless information and were certified in a profession whose standards don't accomplish the one thing they're supposed to (i.e., assure the user of financial statements issued with an unqualified opinion that they 'fairly represent the financial condition' - regardless of GAAP).

Or... we can blame Andersen!

Just wondering, What would classify a "large truck"? Are we talking semi tractor trailer or Ford Ranger? I guess we should call the people that calculated the figures on that one to find out for sure.

If an auditor knows GAAP is followed but the result is a serious misrepresentation of financial condition and they bless it anyway, then of what value is the audit or the opinion?

Further, we're not talking about deleting a few e-mails. We're talking about truckloads of documents related to a known federal investigation (!) (Or is that just the silly ol' the media again?) I think we all know that routine destruction of old or unimportant documentation is not the issue... anybody with any objectivity can figure out what happened here.

Although this is unfortunate what Andersen is going through, accountants as a whole need to assess the key essential of our work. We are here to help the public make sound financial decisions. When we start putting how much money we can make over the public interest, then we lose our essence of being accountants.

The irony is the auditor got indicted before the client! Enron clearly committed criminal acts. Unfortunately, it's looking like what Enron did for the most part (aside from the criminal act of intent and hiding information on some deals) was simple accounting chicanery created with the authority of GAAP and blessed by Anderson. I just feel sorry for the 99.9% of Anderson employees who I'm sure are very capabale and of the highest integrity. As usual, it's those folks who will ultimately pay the highest individual price. I hope the best and brightest are 'gettin' the heck outta Dodge' so to speak (western slang seems to fit here).