The CPA Journal

March 2002

Enron Hits Close to Home

Most of the investigation, discussion, and media coverage of the Enron debacle continues to focus on the national and international implications for the economy and the business world. But the Enron bankruptcy will be remembered in the history of accounting as a dramatic change in state regulation of the profession.

On the national level, the major players include Congress, the SEC, the AICPA, the media, and the business community. Here in New York State, lawmakers in both houses of the state legislature, determined to protect their citizens, have submitted bills whose provisions would directly or indirectly affect state regulation of the practice of public accounting. The State Higher Education Committee heard additional proposals at its public hearings in February. CPAs in New York State need to be aware of these proposals and consider their implications.

Proposals under consideration include the following:

Give the New York State Board for Public Accountancy more independence, decision-making authority, and staff and other resources. These overdue changes are supported by the NYSSCPA. The state board plays a key role in protecting the public. The proposed changes would allow it to act in an expanded role, like its counterparts in other states.
Make peer review mandatory for all firms that provide audit and attest services. The NYSSCPA supports this measure and recommends that CPA firms be subject to more regulation when selecting peer reviewers than is currently the case.
Make it a crime for anyone at an audit client to lie to the auditor.
Prohibit CPA firms from providing consulting services to their audit clients. We’ve already seen major firms spinning off their consulting arms as a way to minimize even the faintest appearance of the lack of auditor independence. The NYSSCPA does not support a ban on consulting for clients.
Put the brakes on the “revolving door” that countless auditors have passed through on their way to jobs with their clients. Proponents of this proposal would impose a minimum waiting period before an auditor could accept employment with an audit client. The NYSSCPA opposes this proposal as well. We are concerned about how recruitment into the public accounting profession would be affected if people knew they cannot move into industry.

These proposals all have potential good points and bad points that need to be explored and discussed. In the same way that setting term limits for elected officials and limiting campaign contributions can solve the problems they were intended to address while creating new, unforeseen problems, it is important that new legislation be crafted to avoid unintended consequences.

For both our state and the entire professional community, we need to bring our most sound thinking to bear. New York is the epicenter of the financial world and has always been a bellwether state. The outcome of the debate over accounting law and regulation in New York State may well influence the debate in other states and across the nation. Our responsibility for proceeding wisely at this juncture is large. The text of the bills can be viewed online at www.nysscpa.org, in the Enron Center. If you have input on any of these current proposals, or a proposal of your own, write or e-mail me with your thoughts.

Louis Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA
lgrumet@nysscpa.org

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The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

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