Andersen's death brings lessons for Berardino

Ex-CEO addresses 'State of Profession' conference

PHOENIX — "There is a certain wisdom that comes through dying," says Joseph Berardino, and he should know.

The former CEO of Arthur Andersen LLP watched the Big Five firm crumble last year in the wake of the Enron scandal, but he says he has emerged from the rubble with some perspective on what's happened to the CPA profession since then.

In November, he offered some of that perspective to attendees at the "State of the Profession" conference in Phoenix.

Since resigning from Arthur Andersen last March, Berardino says he has met with investors, CEOs, CFOs, CPA leaders and students in search of answers to the accounting scandals that sank Enron, Andersen, WorldCom and others. "And I come before you in humility, humbled, to find solutions," he told the crowd in Phoenix.

Part of the process involves analyzing the genealogy of the scandals.

According the Berardino, the potential for problems grew as the stock market became more democratized. In 1983, 20 percent of the public owned stock. In two decades that number rose to more than 50 percent. Investor information became more widespread but less often read. And with the expanding popularity of investing and rising stock prices came excessive executive compensation, stock option grants and growing greed. The pressure to manage earnings grew.

"Finding a way around accounting rules became a new sport," Berardino said.

At Enron and WorldCom, that sport contributed to the largest corporate bankruptcies in history. So what has Berardino learned from his firm's death? In Phoenix, he pointed to these lessons:

A fresh look must be taken at disclosures, simplifying them and aligning them closely with performance.
Audit committees should spend more time analyzing key risks, and evaluating and reporting on risk management.
Auditors should improve their ability to detect fraud.
Outsiders should be invited to sit on advisory boards.
Auditors might consider grading clients' financial statements and offering qualitative opinions. This could improve the quality of disclosures.

And though there are some who would like to do so, eliminating risk is not possible — nor should it be considered an option.

"The system won't work if business is not willing to take risks," Berardino said. "Losses are as important as gains. (But) doing nothing is not an option."

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