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
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
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
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.