In Enron's wake, CPAs remain committed to core values

Note: The following is a message to MACPA members from Executive Director J. Thomas Hood III and the association's Board of Directors.

Our profession is still reeling from the collapse of Enron Corp. This complex, high-profile failure has placed CPAs under a microscope and raised a number concerns regarding not only Enron, but our profession's alleged role in the collapse.

At the Maryland Association of CPAs, we believe it's important to address at least a few of those concerns.

Enron's collapse was a tragedy for its employees and investors, many of whom lost large chunks of their retirement "nest eggs" when the price of Enron stock plummeted late this past year. Some $60 billion of stockholder value was wiped out almost overnight, and the cost in human suffering might be greater still. It is impossible — indeed, it would be wrong — to overlook that fact.

Who is at fault? That remains to be seen. We must wait for conclusive evidence to surface before pointing fingers of blame in anyone's direction. Securities and Exchange Commission Chair Harvey Pitt reiterated this in a recent Wall Street Journal commentary. "Until all the facts are known," Pitt wrote, "there is nothing that can or should be said about who may be responsible for this terrible failure."

The system works

As bad as the situation seems, though, we would be wise to remember this: Our financial reporting system remains the best in the world. Former SEC Chair Arthur Levitt, a vocal critic of our profession, said as much during an October 1999 speech:

"Today, America's capital markets are the envy of the world. Our efficiency, liquidity and resiliency stand second to none. That hasn't happened by accident. For a good part of this century, our system of financial reporting has come to be characterized by its high quality and transparency. This has instilled an unparalleled degree of confidence and trust."

This faith in our financial reporting system can be traced directly to the five core values in which our profession is rooted: objectivity, integrity, continued education and lifelong learning, staying attuned to broad business issues, and competence. These values are the foundation upon which every CPA builds his or her business — and reputation.

They also form the backbone of a proud tradition of self-regulation, not only at the public company level, but at the private level as well. Our auditors enjoy the freedom to provide non-audit services, knowing they are being governed by the profession's stringent self-regulatory controls.

Audit process on target

Some have questioned whether such auditors can truly be independent. The answer, according to the Panel on Audit Effectiveness, is an unequivocal "yes." This independent, private body — created by the Public Oversight Board in 1998 at the request of the SEC — was asked "to review and evaluate how independent audits of the financial statements of public companies are performed and assess whether recent trends in audit practices are in the public interest."

The panel released its final report in August 2000, noting several recommendations to improve the audit process but also emphasizing that it found no instances in which non-audit services had caused a failure in the audit process.

And the audit process itself? In spite of the Enron collapse, it remains strong. According to AICPA Senior Vice President Al Anderson, more than 16,000 audits are completed annually before the SEC for public filings. Of those, says Anderson, "99.9 percent are high quality."

So what went wrong at Enron? Many things, it seems. Enron's very nature — high both in risk and complexity — presented a unique challenge for our reporting system. As strong as that system is, as effective as our audit process can be, failures can still occur. We can never completely remove the risk of a failure. As attorney Michael R. Young, a partner with Willkie Farr & Gallagher and author of Accounting Irregularities and Financial Fraud, told Accounting Today: "The accounting profession has yet to come up with a magic formula for guaranteeing that the accountant gets every piece of paper and bit of information that may be lurking in the bowels of their client."

What we can do is extend our 100-year tradition of continually improving the system and responding to the public interest. Like everyone else, our profession wants to know what happened so we can prevent it from happening again. We support efforts to analyze and resolve the Enron disaster, and to develop measures to prevent this from happening again. And our role in providing reliable financial information is critical to the system, whether we are attesting to a small business financial statement or a financial statement of a publicly traded Fortune 500 company.

Our hearts go out to Enron's employees and investors. They've endured a personal and financial tragedy unequalled in scope.

But as we wait for the investigations and hearings to run their course, we as CPAs must remember these important facts:

Our financial reporting system is working.
We are dedicated to our public responsibility as auditors.
Now more than ever, our profession is embracing its core values and letting them shape our professional lives.

Enron's collapse underlines the importance of abiding by our core purpose: We are the trusted professionals who make sense of a changing and complex world.

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