Workshop: NCCPAP Leaders Speak Out On Enron & Accounting Issues
Presented by National Conference of CPA Practitioners
Contact Neil Sullivan
Wednesday, February 20, 2002 at 3:00 pm EST
February 20 workshop sponsored by National Conference of CPA Practitioners
The leadership of the National Conference of CPA Practitioners (NCCPAP) announced their concerns regarding the fallout from the events surrounding Enron. The leadership of the organization believes that this situation has the potential to permanently tarnish the reputation of this country’s Certified Public Accounting community.
The leadership of NCCPAP pledges to continue to speak out about issues that adversely affect the public and the accounting profession. Additional information about the National Conference of CPA Practitioners can be found at www.nccpap.org on the Internet.
Neil Sullivan: Thank you for joining in the discussion today. We look forward to your comments.
Session Moderator: I'd like to welcome everyone to today's open forum discussion, presented and sponsored by the National Conference of CPA Practitioners. Participants from NCCPAP today include Alan Feldstein, President; Bob Goldfarb, Chair of the Issues Committee and Immediate Past President; Chuck Pegler, Vice-President; and, Neil Sullivan.
Your questions are encouraged throughout the session. Simply type your question in the horizontal box below and hit the ENTER key.
When clients and the public deal with a CPA firm they know and expect the utmost professional service as well as independence, integrity and objectivity. They have come to know that the professional CPA will act without a conflict of interest. CPAs have performed within these guidelines with pride and will continue to work for their clients and the public with independence, integrity and objectivity no matter what the nature of the work is that they perform, whether directly or through third parties. In light of the ENRON collapse, where an affiliated firm of the auditing firm received significant fees from consulting services, there is, at a minimum, the appearance of a lack of independence and objectivity.
According to Paragraph 9 of the Statement on Quality Control Standards No. 2 (QC20.09) Policies and procedures should be established to provide the firm with reasonable assurance that personnel maintain independence (in fact and in appearance) in all required circumstances, perform all professional responsibilities with integrity, and maintain objectivity in discharging professional responsibilities. According to Merriam Webster, independence is being free of control by others. There is no question as to what independence is!
NCCPAP believes that there is a strong need for states to implement a governmental required peer review program. If the CPA conducts any attest function of companies and the CPA is a member of the AICPA or if she/he is performing a governmental audit, only then is there any peer review requirement for the CPA. NCCPAP believes that this is inadequate.
Accountants throughout the industry have focused on the issue of receiving consulting fees by CPAs. This discussion has been revisited due to the ENRON situation. A practicing CPA firm not only performs regulatory and traditional work but also performs different types of consulting for their clients. Let us not lose sight of the fact that CPAs have been doing consulting, business valuations, litigation support and other non-attest functions for clients for a very long time. We strongly believe that CPAs can perform consulting services for clients and maintain their independence. Unfortunately, we also believe that, among other factors, some CPAs may become conflicted if the fees for consulting services are so large in relation to the fees received for performing the attest function. We do not think that regulations should prevent CPAs who perform the attest function for a client to be precluded from performing consulting and other services for the same client.
However, we are aware of the possible conflict that can occur. The ENRON story was caused by a public company being audited by one of the five largest accounting firms in the world. The fallout from the ENRON situation has the potential to permanently tarnish the reputation of every Certified Public Accountant in America. We are concerned not only for the enormous financial losses suffered by ENRON employees and shareholders, but for honest certified public accountants across the country.
Gentlemen, the floor is yours.
On behalf of the National Conference of CPA Practitioners. I would like to thank you all for joining us today. Obviously, the Enron issue is an accounting topic that involves us as CPA's as well as the public. How has the Enron situation affected each of you in your practices?
One of the concerns I have is the impact the SEC regulations (new) may have on the local practitioner.
Fred Overland: We've had no direct impact - just the tone of our clients has changed to our profession, not to us individually.
Chuck Pegler: I agree, virtually every client I've seen has asked how Enron has effected us.
Bob Goldfarb: several banks have already informed us that they are concerned about the long-term relationship with clients.
Nate Bohanan: Right--perception, rather than impacting my one-to-one relationships.
Brian Falony: Our clients have not been overly concerned.
Timothy Doyle: We don't do any SEC work, but we're thrown in with the Andersen's taking the fifth, etc. and we have to take time to explain to some of our clients that our systems are sound.
Todd Newman: I have had a banker pay closer attention to my personal relationship with a client and expressed concern over the validity of the financials.
Chuck Pegler: Not overly concerned -- but QUITE interested.
Bob Goldfarb: The banks seem to be concerned with the possible rotation of auditors even when dealing with non public companies.
Chuck Pegler: Virtually every client has asked whether I think Andersen will survive.
Timothy Doyle: Our clients are more concerned about the value of their portfolios dropping because of accounting irregularities that they are reading about and seeing on the news.
Bob Goldfarb: We are also seeing a concern about the potential separation of tax return preparation from clients who we do attest function for.
Alan Feldstein: I agree.... the effect on the financial markets seem to be my client's biggest concern.
Chuck Pegler: They are concerned that the stock market will stay depressed due to lack of confidence in the financial reporting.
Todd Newman: And the banker wanted to know the extent of my personal relationship with the client.
Bob Goldfarb: Todd's issue is exactly the concerns we are seeing by the banks.
Chuck Pegler: I am concerned that merely FOUR firms will be auditing some 90% of SEC companies.
Bob Goldfarb: I agree with chuck, but can 4 firms handle all the work?
William Tyler: I keep getting questions about my take on this item or that revelation, and I have many customers who are seeing the impact in stock terms.
Chuck Pegler: The big 5 (final 4?) have swept away the second tier.
Chuck Pegler: There doesn't seem to be any more "second tier" firms.
Chuck Pegler: That means even LESS competition.
Alan Feldstein: It is important to remember, our clients, for the most part, are no the Enron's of the world.... but the people injured by Enron.
Fred Overland: I'm afraid that some public relations triage work is badly needed, and is already 6 weeks late in coming... Any idea how the profession will formally respond to restore faith?
Bob Goldfarb: regarding Fred's question, NCCPAP released our statement immediately and we expect to role out a program to inform the banks about the differences between public and nonpublic audits.
James J. Hand, III: What effects will the Enron situation have on NCCPAP's Peer Review Program?
Alan Feldstein: NCCPAP issued statements and press release almost immediately. In NY we testified before a Senate committee that it addressing the issue.
Tom Lemmon: I'm curious as to what the panel thinks about smaller firms who have one audit client that makes up 15, 20% or more of their annual fees. Is this common and is this an independence concern for bankers & regulators?
Alan Feldstein: Tom, I'm not sure at what dollar level, independence is impaired. In small firms, for the most part, these are privately held businesses.
Todd Newman: If one firm generates 20 percent of its fees from one client I would personally think that it could lead to a potential problem regarding independence and how the issuance of a negative report may adversely affect future business.
Leigh Knopf: I'm concerned about the future, particularly the long-term viability of the profession and how students (current and future) and educators are reacting to this Enron situation. What, if anything, have you heard?
Chuck Pegler: I see lots of cynicism.
Bob Goldfarb: I am an instructor at a local college and the students are very concerned about the Enron issue as well as the publicity of the financial services market place.
Alan Feldstein: My understanding is that the Large firms are experiencing a recruitment problem at some colleges
Alan Feldstein: I personally haven't noticed a big change at our level
Bob Goldfarb: On the other hand, at another college where we are doing some recruiting next week, the career center people tell us that the students are not addressing the Enron issue with them.
Timothy Doyle: We've had some difficulty recently in conversations with students as to whether they are likely to enter the profession now that the whole Enron affair has been exposed. Has anyone had similar difficult conversations, and how are you addressing the student concerns?
Todd Newman: While I have full confidence in the ethics of many of my fellow professionals, there are some who are guided solely by dollars and that issue needs to be addressed timely in order to continue to attract top students into our profession.
Chuck Pegler: It has been difficult for the local practitioner to attract quality help. It will be harder still.
Fred Overland: I know that Andersen hosted a conference call last week with top accounting colleges to allay any fears and let everyone know that they're OK. I'm not sure how well this went over though. Has anyone heard?
Bob Goldfarb: I have not heard anything about the Anderson conference call.
Timothy Doyle: We have proactively gone out to our larger clients to assure them of our continued high level of service, interest in their business, integrity as professionals and to answer any direct questions they have to help them feel more comfortable with us - or anyone - as an accounting practitioner.
Chuck Pegler: I think the other big 5 want to see Andersen survive much as Microsoft NEEDS Apple to survive.
James J. Hand, III: What effect if any, does the Enron have on our peer review program?
Alan Feldstein: Ultimately.... I think it will enhance the need for our peer review program Jim.
Bob Goldfarb: in our testimony we suggested that NYS require a peer review program
Tom Lemmon: Gentlemen, I understand from your web site that you have a Houston chapter. How are your members there holding up? Getting any old Andersen businesses.
Alan Feldstein: Our Houston people are quite concerned about public perception as you can imagine.... but I'm not aware of any of them picking up the Enron audit
Chuck Pegler: One of the local newspapers suggested that a partial fix would be to have the BOARD of DIRECTORS engage the auditor rather than the officers of an audit client.
Nate Bohanan: I've heard quite a bit in the industry press about moves to respond to Enron by the profession, but I'm not hearing that come through in the general press. What is being done to touch the person on the street, who only sees the nightly news or CNN?
Fred Overland: Nate's question is a good one. Anyone know how the AICPA is planning to respond to the "average" person out there?
Chuck Pegler: My perception is that the Institute has never really looked after the needs of the small/local practitioner
Bob Goldfarb: Barry told us that the AICPA is rolling out an advertising campaign in the near future. We were told this several weeks ago but have not seen the ads released yet. We saw a rough draft but nothing final yet. WE really are waiting for their response first. I am referring to a meeting that Herb Schoenfeld and Alan Feldstein and I had with Barry Melancon and Jay Rothberg earlier this month.
Chuck Pegler: I would be QUITE surprised if they really addressed small firm needs. For the most part, out clients recognize that there is as much similarity between the local practitioner and the big 5 as there is between a surgeon and a psychiatrist.
Alan Feldstein: The AICPA has drawn a line in the sand between firms that do public company audits and smaller firms.
Todd Newman: The AICPA, as we all know, is not responsive to the needs of the smaller firms
Nate Bohanan: But the public doesn't necessarily draw that line--sure some do, but many don't. And that is where we get our students who want to be CPAs, many of my clients, etc.
Alan Feldstein: We are working closely with them Todd to see if they live up to their initial stance of separating the smaller practice units from this issue....
Alan Feldstein: But NCCPAP still must take the lead in being the voice for the smaller firms.
Alan Feldstein: I find that the difficult question from clients is when they ask me to explain exactly what happened at Enron.
Tom Lemmon: The AICPA Web Site includes information about the many interviews conducted by our leadership and senior staff including video of CNBC appearances. We are also e-mailing a virtual toolkit to all firm managing partners, to assist them in communicating to clients and the public.
Timothy Doyle: Thanks Tom that sounds like it will be a start. But what about damage control on damage already inflicted in the public perception of "the most trusted business advisor?"
Bob Goldfarb: Tom, when will the ad campaign actually roll out?
Neil Sullivan: Tax Notes Today reported that on Feb 13, by House Financial Services Committee Chair Michael G. Oxley, R-Ohio, would limit certain accounting consulting activities by auditing firms, but would not restrict firms from conducting tax services.
Alan Feldstein: Is that for all firms Neil or just firms that do Public Company audits?
Neil Sullivan: I don't know. The TNT article did not specify.
Todd Newman: In order to fiscally survive, a smaller firm must be able to provide all types of professional services.
Bob Goldfarb: In an answer to an earlier question, a certified F/S for a private company usually goes to, and is required, by a third party lender. The lender made a decision at the outset to infuse capital into the business and either approved of the CPA firm or suggested one to management. This concept should not and cannot change. It is our responsibility to make this point strongly to the lenders.
Fred Overland: Is there a comprehensive web site that is keeping up with identifying all of these "sweeping" changes that are coming to the profession?
Alan Feldstein: A great place to start is at www.nccpap.org
Fred Overland: Thought you would say that :-)
Alan Feldstein: Thanks Fred
Neil Sullivan: Fred, AccountingWEB has information as well.
Alan Feldstein: We've been checking the Joint Tax Committee website, Senate Finance.... but you do have to bounce around a bit.
Ginger Fleishell: Any activity going on in the states - state legislatures or state board activity?
Alan Feldstein: I am aware of hearings being held by the California state senate.
Alan Feldstein: I have a meeting tonight with the NYS Society of CPA's to discuss more of their damage control plan.
Bob Goldfarb: It is up to us as CPAs to constantly discuss the differences between our type of practice and that of the big 5. No one invests capital into our clients except the principals. The only responsibilities we have are to the client, the lending institutions and the taxing authorities. This should be discussed with the client and the public at all times.
Alan Feldstein: We've been involved in hearing conducted by the NYS Senate.
Timothy Doyle: What about current staff views of the Enron aftermath? Any morale issues? Professional/career concerns? How is everyone addressing that critical constituency?
Tom Lemmon: I'm checking on the timing of the AICPA ads. Stay tuned to accountingweb.com or aicpa.org to see the schedule.
Leigh Knopf: there are numerous sites but none- that I know of - that is totally comprehensive. The corporatelibrary.org has several good items and links to other sites.
Timothy Doyle: What about current staff views of the Enron aftermath? Any morale issues? Professional/career concerns? How is everyone addressing that critical constituency?
Alan Feldstein: that includes internal (staff) concerns as well as external
Todd Newman: I think anything of this magnitude would have to lower the morale of a staff accountant as the profession joins the ranks of others that have become fodder for jokes by the Letterman's and Leno's of the world.
Alan Feldstein: We laughed when it was the lawyers
Neil Sullivan: Accountants throughout the industry have focused on the issue of receiving consulting fees by CPAs. This discussion has been revisited due to the ENRON situation. A practicing CPA firm not only performs regulatory and traditional work but also performs different types of consulting for their clients.
Timothy Doyle: And for accounting to have its "prime time" debut in congressional hearings taking the fifth can't be good for anyone's reputation!
Alan Feldstein: I agree... taking the fifth gives the perception of guilt. Some form of consulting in small business audits is absolutely necessary.
Neil Sullivan: Let us not lose sight of the fact that CPAs have been doing consulting, business valuations, litigation support and other non-attest functions for clients for a very long time. We strongly believe that CPAs can perform consulting services for clients and maintain their independence. Unfortunately, we also believe that, among other factors, some CPAs may become conflicted if the fees for consulting services are so large in relation to the fees received for performing the attest function.
We do not think that regulations should prevent CPAs who perform the attest function for a client to be precluded from performing consulting and other services for the same client. However, we are aware of the possible conflict that can occur.
Todd Newman: The smaller CPA firm will not survive if we are not allowed to pick and choose what we can do for our clients but are subject to unnecessary regulations. We have to develop a program of self-policing that will work- if that is possible.
Timothy Doyle: And wanted by the clients!!!!
Bob Goldfarb: We all have a common cause to defend our profession to everyone including prospective students. The college outreach program that NCCPAP sponsors will be at the high school level very soon. Staff updates and meetings on ethics and the turmoil in the profession are extremely important. We have a meeting of this type every Saturday in our firm.
Todd Newman: Bob- you touched upon an important point. At the college level and maybe before that- ethics must be taught to prospective business students and the ramifications of what happens if there is unethical acts performed.
Fred Overland: So what is the business development opportunity in all of this (there ALWAYS is a business development opportunity...) what can we do with/to/for our clients today that will (1) help them feel better, (2) help them solve a problem, and (3) help us make some money???
Fred Overland: Anyone?
Alan Feldstein: Ultimately Fred, I think our clients do feel better about us in light of the Enron situation. I think most of my clients would agree that the personal relationship that we have is what protects them.... and gives them confidence in what we do.
Nate Bohanan: I think my clients trust ME, but not necessarily the profession; and that has an impact on capturing new clients.
Alan Feldstein: We need to sell that.
Neil Sullivan: As we begin to wrap up this discussion, are there any other comments or questions you would like to make?
Nate Bohanan: Since until there is a relationship, the professional stereotype is what defines prospective clients' perceptions.
Fred Overland: I'm looking forward to getting the Virtual Toolkit that Tom spoke of. When will that be ready, and how will we get it?
Alan Feldstein: The National Conference of CPA Practitioners will continue to take the lead in protecting the integrity of smaller CPA firms
Todd Newman: MY only comment is that all practicing CPA's need to join NCCPAP if they haven't already! Place your support behind the people that truly are fighting for the rights of the individual practicing CPA.
Alan Feldstein: The points made today represent a good cross section of the concerns we've heard over the last few weeks. Please remember to check the website for updated information.
Fred Overland: Thanks guys ---
Nate Bohanan: Thanks. It was informative.
Kelly McRae: Thank you gentlemen for hosting this session. We all appreciate it. We welcome you back soon! Keep us posted on AccountingWEB. We will have the transcripts ready tomorrow-mid morning EST. Thank you to NCCPAP for their ongoing support...We appreciate it at AccountingWEB.
Alan Feldstein: Thank you Kelly and AccountingWEB. On behalf of NCCPAP, I would like to thank all that participated today.
Neil Sullivan: Thank you all for sharing your comments.
Bob Goldfarb: Thanks Kelly for all of your help today and in the past!