March 2002

Concerned Students Hear Experts Predict a Revitalized Profession

By Ned Regan

On February 5, more than 700 business students—our next generation of accountants, auditors, financial managers, and CFOs, all of them straining to understand “what went wrong at Enron”—crowded into Baruch College’s Mason Hall to hear the leaders of their chosen profession. Recognizing the urgency of the Enron debacle, I had convened this special forum of nationally noted experts to stir discussion and answer the questions of Baruch’s students.

Larry Zicklin, chair of Neuberger Berman, began the proceedings with a blunt assertion: The Enron story is nothing less than “a poster child for the systemic failure of business in America.” But Zicklin gave his grave, sweeping diagnosis a surprising punch line: The accounting profession will emerge from the scandal and its aftermath stronger and more energized.

Other panelists concurred. Robert Herz, a member of the International Accounting Standards Board (IASB), told the students: “I’m very optimistic. In three to five years Enron will be seen as something that got us back on the right track.” Citing internal reforms now under way, he confidently predicted: “This is a great time to go into the profession.”

Phil Livingston, executive director of Financial Executives International (FEI) and a widely cited authority on the Enron case, called the event “an incredible case study in grotesque failure,” but he also predicted that meaningful internal reforms and greater oversight will ensure a bright future for the profession. One panelist pointed out that although the Enron scandal has generated unprecedented anger and concern, it has also generated sudden, dramatic awareness of a profession that is seldom in the spotlight.

But the collapse of Enron—or something very much like it—should have been anticipated. It marks the culmination of a decade of eroding standards, moral lapses, and increasingly “managed” earnings. Enron had its precursors in Sunbeam, Cendant, Waste Management, and other less publicized instances of financial irregularities and auditing failures.

Baruch has been training accountants since 1919, and its students come from every corner of the globe. One thing they share is an aspiration to succeed in a profession that will bring them respect and a decent livelihood. For many of them, a degree in accounting is a passport to the American dream. The audience that day, including 100 or so honors MBA candidates and hundreds of undergraduates, listened intently. Undoubtedly almost all of them had read press accounts of the case and heard congressmen, pundits, and TV anchors direct their sound-bite jabs at Enron and its auditors. But the students had more fundamental concerns. They had a personal stake in the long-term consequences of the Enron case, and some were reappraising their career plans. Had unscrupulous individuals at Enron and Andersen damaged their dream? Was the profession they were working so hard to join tainted? Would their jobs be to help corporate crooks bilk investors and avoid the consequences?

Following brief remarks by each of the panelists, which also included Norman Strauss, FASB adviser and former Ernst & Young partner, and Douglas Carmichael, Baruch’s Distinguished Professor in Accountancy, the students lined up six-deep at two microphones to ask questions.

On few occasions in its history has the accounting profession been as riled as at this moment. Nonetheless, without exception, the students’ questions were calm, informed, and thoughtful: What kinds of reforms are likely? Should the SEC be strengthened? Would auditing be divorced from accounting by federal mandate and, if so, how would that affect their future salaries? Perhaps most troubling was the query from Eduard Khayat, president of the Baruch chapter of Beta Alpha Psi (the national honor society of accounting students): “How can a first-year member of the profession, just starting out, make his voice heard if he sees improprieties?” Khayat wondered if his choice would ultimately come down to “Be quiet or get out.”

The concern felt in the hall was deep and palpable—and at this moment it’s surely shared by students in business schools across the country. What came across most strongly was the sense that these young men and women want to believe they are joining an honorable profession, one they can be proud of, and one that constitutes the very backbone of American capitalism.

The panelists echoed this theme. “Our capital markets are largely based on trust,” Phil Livingston noted, adding that “Lack of trust greatly impedes many economies.” The accounting profession was experiencing a crisis of confidence, Doug Carmichael added, because it rests ultimately on a bedrock of personal integrity. Your integrity is your most valuable asset, he told the auditors of tomorrow—treasure it, let no one steal it from you.

Each speaker stated his conviction that the profession is undergoing a period of intense self-examination and shakeout. The outcry against lax and “creative” accounting practices and the lack of transparency in financial reporting was general and genuine. In the aftermath of Enron, the panel suggested, auditing practices will become more rigorous, the profession purged and strengthened, and whatever specific reforms are necessary will be made. American business will not permit a second Enron. The students listened closely, then returned to their classes. For the time being, they seemed
willing to believe it will all turn out for the best.

Ned Regan is the president of Baruch College at the City University of New York and former comptroller of the state of New York.

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