The Washington Post has begun a series of articles that place the accounting profession under a microscope. The first article, appearing in today's newspaper, focuses on the billions of dollars lost by investors as a result of accounting errors, the role of accountants as public watchdogs, the independence policies heralded by the Big Five firms and the SEC's attempt to pull in the reins on auditor independence, the standards and practices that are expected of public accountants, and the types of conflicts that can arise.
The article points out the fact that many accounting firms make more money from their clients by providing advice than they do from providing auditing services. As a result, the SEC, under former chairman Arthur Levitt, argued that such an arrangement can tempt an accounting firm to issue favorable opinions where perhaps some issues exist that should be qualified on financial statements. In addition, the SEC has warned that the potential for auditors to use the audits as auditions for possible jobs with the client companies "can encourage auditors to make improper compromises."
The article points out that the American Institute of Certified Public Accountants encourages auditors to expand services in their publication, Make Audits Pay: Leveraging the Audit Into Consulting Services. "The auditor should think of himself as a 'business adviser' and promote his accounting firm's consulting services because 'intense competition has reduced the audit to a mere commodity that is distinguishable to the consumer only according to price.'" The book suggests that "Conflicts may arise" when an auditor is asked to perform two roles that are inherently at odds. "The business adviser is a client advocate," responsible for "acting in the owner's best interests." That is "completely different from the professional skepticism required of the auditor," the book says. But it goes on to suggest that the conflicts are manageable if the auditor errs on the side of looking out for the public interest.
The AICPA cooperated in providing information to The Washington Post. Earlier this week, the AICPA sent out a media alert to all state CPA society executive directors, warning of the impending series and offering to provide assistance in responding to the articles. "Our expectations for the series is that it will not be very positive and will certainly highlight alleged 'deficiencies' in the audit process, the role of peer review, etc. We . . . believe that the series . . . is likely to be very biased against the profession," stated AICPA spokesman Geoff Pickard in the media alert.
The next article in the series addresses the accountants' accountability.