State of the profession: A view from the GAO

PHOENIX — U.S. Comptroller General David Walker had some strong words for small and mid-sized CPA firms at a recent AICPA conference on the state of the profession.

"(The General Accounting Office) is in the performance accountability service," Walker said, "and so are you."

Walker said the business breakdowns involved not just Enron and WorldCom, not just one CPA firm, and not just big CPA firms. According to Walker, there has been a recent increase in earnings restatements in frequency and nature. The result has been an adverse impact on investor confidence and public trust.

Trust, he said, is hard to gain — and easy to lose.

According to Walker, in Andersen's case a few key people did not do the right thing. Those responsible should have been appropriately punished, he said, but not the whole firm.

Core values are absolutely necessary for any entity, said Walker, who advised CPAs to learn from their lessons. The profession is at a crossroads, he said. Like in the "perfect storm," things appear calm now, but the profession is in the eye. The storm is not yet over, and Walker said CPAs must rise to the challenge with more than words — results, he said, are what counts.

The AICPA also has an important role to play as the professional association, not trade association. According to Walker, the profession needs to address improvement of the accounting and reporting model.

"The 'p' in public stands for public interest," he said, adding that CPAs cannot do all things, but they can serve the public in many ways. There is a broader business challenge — to influence others to do what they should do.

Walker had tough words for corporate leaders, too. In terms of corporate governance, the role of boards of directors should be to:

maximize value;
manage risk; and
hold management accountable.

Boards need qualified and independent directors, Walker said, adding that a CEO should not be chair of the board. And no individual is worth what some executives were being paid, he maintained. "If stock options aren't compensation, then what are they?"

Walker also addressed what is wrong with the profession's standards. He said CPAs are beyond the industrial age. Intellectual capital drives value. Moreover, he said, the reporting model does not make sense. CPAs should move to principles-based standards that focus on economic realities, and auditors should move away from checking boxes to using judgment. Walker challenged auditors to question what the substance is: What is right? He said the audit model is broken, too. Much has to be done — the scope, approach, timing and independence of audits needs to be reviewed.

Walker offered these guiding simple principles:

Auditors cannot make management decisions and cannot audit their own work.
Auditors must do what they think is right. The choices an auditor makes should be based on core values. Those should never change.

In defense of the GAO, Walker said regulators have vast responsibilities but limited resources. He said government should be the last resort, not the first. The GAO, Walker maintained, believes in leading by example and voluntarily reports on internal controls for everyone it audits. The GAO took the lead on independence, and Walker said the government can lead by example in assurance and attest.

In summary, Walker said the profession is at a crossroads and CPAs need timely action in a range of areas. Action counts, he said — not words. CPAs must accelerate progress and demonstrate results quickly in order to retain credibility. Moreover, he said CPAs must accept responsibility for what is theirs — and make sure others take their responsibility.

CPAs must lead by example. All must have core values of integrity, objectivity in service and competence. They must focus on what binds CPAs together, not what separates them. And they must focus on the following:

Greed is bad.
Public vs. personal interest
Substance over form
Independence in both fact and appearance
Keep in mind that the floor (not the ceiling) is law and standards.
Seek what is right.
Don't live for today; rather, prepare for tomorrow.

The key word is "stewardship." If CPAs work together to get results, they can take the profession to new heights and create a strategic alliance between CPAs and those who look out for the public interest.

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