ANALYSIS: Reputation Management - Industry left accountable foractivities at Andersen

When Andersen signed off Enron's questionable balance sheets, it

condemned the entire accounting industry to PR purgatory, and left it

with the monumental task of trying to regain America's trust. Robin

Londner reports.

Before Enron combusted in a show of kinetic accounting gone horribly

wrong, few would have drawn parallels between number-crunching

accountants and word-master PR folks. But it turns out the

calculator-toters and the Blackberry-schleppers have something in

common: Both industries are worthless without their credibility. For

accountants, that credibility has not just come under fire; the cover of

the current issue of BusinessWeek says it's "in crisis."

The day after a Washington Post article described the American Institute

of Certified Public Accountants (AICPA), the national professional

association for accountants, as the group "for which negligence has made

self-regulation by accountants a cruel joke on investors," the

330,000-member group hired strategic communications firm The Weiser

Group (TWG). The firm has represented and maintains a client

relationship with Big Five accounting firm Deloitte & Touche on which it

will not comment. TWG also represented accounting interests two years

ago in the debate before then-SEC chairman Arthur Levitt on potential

conflicts of interest when accounting firms mix their auditing and

consulting roles.

Widespread ramifications

This is the very practice Andersen may have indulged in when, as Enron's

auditor, the firm signed off on paperwork that hid billions of dollars

in off-balance-sheet debt. But the reputation damage has spilled beyond

Andersen and Enron.

A new SEC investigation into accounting practices has widened skepticism

to the entire accounting profession. An initial statement from current

SEC chairman Harvey Pitt says, in part: "The potential loss of

confidence in our accounting firms and the audit process is a burden our

capital markets cannot and should not bear."

That's why Michael Weiser, chairman of TWG, explains that to restore

faith in accounting he must reach his target audiences of investors,

corporate executives and directors.

"It's critically important that those audiences have confidence in the

auditing profession," explains Weiser, who says his strategy and

approach are still in the early stages.

The AICPA has been responsive to media inquiries, he says, completing a

dozen interviews in the week since TWG had been retained. The

organization also sent a letter to members informing them the AICPA is

aware the Enron bankruptcy has put "unprecedented focus on the

accounting profession and its self-regulatory system."

"As much as anything, we're trying to communicate to the world that the

accounting profession understands that there is a crisis of confidence,"

says Weiser, correcting himself to say, "That is, an issue of

confidence. The profession gets that, and is engaged, and will be

engaged, in processes to restore that."

That engagement comes not a moment too soon. Newsweek this week writes

of the scandal, "The accounting profession is wishing it were once again

faceless and colorless, instead of being in the harsh spotlight." "Blame

it on accounting," cries this month's US Banker magazine, explaining,

"Everyone agrees that the sudden collapse of Enron - the symbol of

laissez-faire capitalism and the biggest bankruptcy in US history - was

due to questionable accounting practices."

While most media outlets single out Enron's auditor, Andersen, as the

prime accounting accessory to Enron's illegalities, the public, SEC, and

Capitol Hill seem to be looking with new suspicion at the entire

profession. This scrutiny will naturally begin with the other four

members of the Big Five accounting firms - Deloitte & Touche, Ernst &

Young, KPMG, and PriceWaterhouseCoopers - which all stand to have their

reputations sullied by association.

Difficult road to recovery

To return the profession to the public's good graces, Lou Thompson,

president and CEO of the National Investor Relations Institute (NIRI),

recommends not just a communications plan, but wholesale change.

Thompson represented NIRI in the same SEC independent standards hearing

two years ago at which TWG represented the accounting industry. He says

as long as there is a lack of independence, that is, as long as auditing

and consulting services can be supplied by one company, the issue of

credibility will dog the profession.

"It's quite obvious that the bulk of fees that come into the Big Five

are from the consulting side," says Thompson. If investors suspect

auditors of looking the other way as a consultant whispers in their

ears, he continues, the profession cannot be credible.

The profession's recent actions aren't helping it gain confidence,

Thompson adds. He says when the Big Five went to the SEC last week

suggesting the management discussion and analysis section of SEC filings

be expanded to cover such things as full disclosure of off-balance-sheet

data, not one firm followed the recommendation with a mea culpa.

"They're putting the onus on the back of the companies for more

disclosure, which really doesn't address what the accounting firms need

to do," explains Thompson, who says more disclosure is better, but

wouldn't much matter if accountants are already cooking the books.

Andersen's accountants made a virtual stew of the books, but when

Deloitte & Touche delivered the company's most recent peer review, it

reported no major problems, and certainly not a whiff of an Enron-sized


To end the image erosion caused by what some see as peer review

rubber-stamping, the SEC two weeks ago suggested taking policing power

from the accountancy firms and assigning that responsibility to what

onetime lawyer for Andersen and current SEC chairman Pitt, described in

a statement as "a tough, no-nonsense, fully transparent disciplinary

system, subject to independent leadership and governance."

But if the Big Five continue to pass the buck in the ways described by

Thompson, the measures may not be successful on Wall Street or Main

Street, both burned by the Enron melt-down. Accountants must at least

appear to support actions with the goal of repairing their credibility

and reputation.

Capitol Hill, already stinging from Enron campaign donation association,

is investigating the company. Sen. Barbara Boxer (D-CA) has made a

statement comparing the Enron situation to a shell game and calling for

accounting firms to be banned from providing management consulting

services for the companies they audit.

But speaking as the son of a CPA, TWG's Weiser is not so quick to sling

arrows at what some see as the outrageous duplicity of the industry.

"Auditing is difficult, it's intellectually demanding, and for many

people it's a calling," says Weiser. "Hopefully we'll be successful in

getting across to people and reminding them of the fact that I think

most who have interaction with accountants believe they are fair,

honest, hardworking, and committed to their clients."

As most PR people will gladly testify, the actions of one or two bad

apples can hurt the reputations of all practitioners. What remains to be

seen for accountants, is just how the wider profession can extricate

itself from the quicksand created by Andersen's number-crunching.

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Already registered?
Sign in