2002: The Year In Review
- Accounting Reform Takes Center Stage
- The Sinking of a Giant - Andersen Goes Under
- Corporate Accounting Scandals Rock Public Confidence
- Ethics Are Back in Vogue
- AICPA Refocuses on Core Values
- Forensic Accounting Emerges as Top Career Choice
- Firm Name Changes and Spin-offs Continue
- Big Changes in The Works For The CPA Exam
- Staggering Lawsuits Hit CPA Firms
- International Auditing Standards Begin Convergence With US GAAP
- IRS Turns up The Heat on Tax Cheats
If you are reading this article as a member of the accounting profession, then let us say "congratulations." Consider yourself a survivor. Never before has the profession seen a year like 2002. Sure, there were news stories on technology issues, computer viruses, minor changes to tax laws, identity theft, etc., but the dominant theme of the year was the overarching, inside-out change for the profession; change in the way it works, the way it is perceived and the way it is regulated.
To help digest the year, and to put these really big developments into perspective, AccountingWEB is pleased to once again present its annual "Year in Review" issue. For your benefit, we offer the top stories that kept us intrigued, perplexed and challenged throughout 2002.
Michael Platt, CEO
(Note: Some of the stories contain links in the body of the article to information from 3rd parties. We cannot guarantee that all of those links are still active or valid links.)
Everyone - Congress, the GAO, the SEC, financial executives, CFO groups, overseas regulatory agencies, the AICPA and other organizations - weighed in on "the new way" that auditors should perform their duties, and CPA firms should be policed. But two people stand out from the crowd and leave their mark - Senator Paul Sarbanes of Maryland and Representative Michael Oxley of Ohio, the authors of the Sarbanes-Oxley Act that will redefine the accounting profession and corporate financial reporting for years to come.
In January 2002, Senator Joseph Lieberman appeared on CBS' Face The Nation talking about the revelations that Arthur Andersen destroyed documents in the Enron investigation. Lieberman prophetically declared that, "this Enron episode may end this company's history." Even the brilliance of hiring Paul Volcker to reform the firm didn't help Andersen. Within two months Andersen was indicted on criminal charges. Three months later the firm was found guilty, and two months after that formally surrendered it's license to practice auditing. As clients, partners and staff bailed out throughout the year, the 89-year-old giant of the accounting profession was painfully put to rest.
We entered the year stunned with the bankruptcy of Enron, which was caused by accounting fraud and misdoings within the corporate office. Trillions of dollars of wealth evaporated as the stock market went south in a vote of no confidence by investors in corporate America, in the accountants who audit them, and in the investment houses that recommend them as investments. WorldCom came along by early summer and took over the dubious title of being the biggest accounting scandal in US history. By year-end, the list of corporate accounting scandals swelled to include other corporate giants such as Adelphia, AOL, K-Mart, Xerox, Qwest, ImClone, Dynegy, Global Crossing, Peregrine, and Tyco. The public watched as CEOs and CFOs were handcuffed, arrested and hauled off to jail in an attempt to reassure the public that the government is looking out for the public's interest. Capping the year was Time Magazine's naming of "The Whistleblowers" as their choice for "Persons of The Year."
Calls for accounting reform also brought calls for ethics training for corporate boards, corporate executives, and accountants. Students ranked ethics and reputation above salary and opportunity for advancement as the key determinants in choosing the organization for which they work. Organizations of all kinds moved to provide ethics guidelines for their members, and to take the lead in rebuilding the reputation of the protectors of corporate wealth in America.
The AICPA began the year with the announcement that the Global Business Credential, which was vigorously supported by the leadership as a way to expand the reach of the CPA, had been resoundingly defeated by the Institute's membership. Within weeks, the AICPA leadership found itself struggling to find its voice in the fast moving chaos that emerged with the rapid disintegration of Andersen and the public trust. Trying to appear cooperative with an increasingly confrontational SEC, while trying to protect its members' interests, the Institute appeared to have some successes and some failures throughout the year. In the end, a vision for the Institute began to materialize, as the leadership laid out a plan to focus its energies on the core values of the profession.
Sometimes for the better, but often for the worse, the events of 2002 propelled the accounting profession into the glare of the spotlight. Enrollment in accounting courses at universities around the country jumped, as a recognition of the importance of this discipline to the stability of the American economy. Suddenly, the image of the accountant as either superhero or supervillain made it cool to be associated with accounting. But perception aside, the big winner in the career sweepstakes was the emergence of forensic accounting as a top career path, a position that made the top lists on several national polls of the hottest jobs of the decade.
As the profession and government regulators took a tougher stance on what accountants should and should not do, the lucrative consulting arms of the various national CPA firms did all they could to distance themselves from their auditor heritage and namesake. IPO plans were put on hold because of a weakened economy, but big money was spent on re-branding the consultants. In our view, the grab-the-money-and-run award goes to the naming consultants who, after months of research and millions of dollars, came up with "Monday" as the new - but short lived - name of PwC Consulting.
As the profession swirled through a very public display of its dirty laundry, one of the biggest changes to hit the accounting profession in a long time quietly made progress this year as the AICPA and State Boards of Accountancy continued the move towards computerization of the CPA exam, now scheduled to take effect in the spring of 2004. Paper and pencil will soon be a thing of the past, and the content of the exam will be updated to more adequately reflect the demand for integrated knowledge.
It seems like every week in 2002 we reported on a firm being sued for improper audits of client financial records. While these suits have occurred regularly in the past, it is the size of these lawsuits that has captured the attention of the press and the public. In addition to the startling numbers originally discussed to settle the Enron case ($800 million at one point), the Big Five firms, national firms, and even H&R Block found themselves settling lawsuits to the tune of tens of millions of dollars this year. Insurance companies are scrambling to adjust to the new marketplace reality and professional liability insurance premiums are going nowhere but up as a result.
Prior to 2002, followers of US GAAP had little time to worry about what the rest of the world was doing with respect to accounting standards. While a number of high-profile US accounting profession luminaries worked with the International Accounting Standards Board to bring a convergence between US and international standards, it had been mostly an academic exercise - until this year. In the post-Enron world, even the heads of some of the largest US public accounting firms have now come out in favor of one worldwide standard, and the race is on to standardize the way the world reports its financial information.
Facing a shrinking budget and limited resources, the IRS is using every available resource it has to catch tax cheats, which outgoing Chairman Charles Rossotti identifies as the biggest problem facing the IRS today. Random audits are back after a 14-year hiatus, and the IRS is using the long arm of the law to prosecute legitimate promoters of questionable tax shelters, forcing credit card companies to assist in identifying offshore havens for tax cheats, and utilizing aspects of the new Homeland Security bill to identify those individuals and corporations who are abusing the system to shelter, hide, or otherwise cheat the US government out of the taxes it is due.
As 2002 ends as 2003 is welcomed with open arms, the staff of AccountingWEB would like to say "Thank You" to the accounting and finance professionals, consultants, vendors, associations and organizations who have helped make AccountingWEB what it is today. We thank you for your dedication and support, and encourage you to stay tuned to AccountingWEB throughout 2003 to ensure that you remain in the know as the profession continues to change and redefine itself.
All the best for a happy holiday season and a happy new year!
The Staff of AccountingWEB
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