April 2002

The Eye of the Storm

The currents swirling around the Enron collapse and its effect on the accounting profession broaden and deepen each day. Three interconnected issues meet at the eye of the Enron storm, and they all strike at the essence of certified public accounting. An examination of these issues presents stark choices that may fundamentally alter what CPAs are and what they represent.

The audit relationship. As the three-party arrangement that we now know-the CPA, the client, and the public-auditing may be a conundrum. The only time people talk about the basic issue-who pays for the audit-is when there's a crisis over the CPA's role as a servant of the public, which relies on the CPA's audited financial statements in making investment and other decisions. Every proposed solution to this dilemma creates its own problems. Because any major change to the client-auditor relationship would cause upheaval in the business community, proceeding with care is vital.

Professional status. Is certified public accounting a profession, dedicated above all to upholding its code of ethics? Or is it an industry, devoted to its own bottom line? The trade-off between acting as a professional held to a public standard and performing as a businessperson out for private gain underlies many of the CPA community's struggles over the last several years. In the minds of some, the AICPA has appeared to transform from professional association to trade organization.

Self-regulation. The profession is proud of its solid, long-standing history of being largely self-regulated. The public, however, has had little or no awareness of this history, at least until fairly recently, when this history has been set in a negative context. At this point, the public might be inclined to agree with the characterization of self-regulation as self-serving. On the whole, the common public perception is that public accounting is much more regulated than it actually is: by the states; in the case of those receiving federal funds, by the GAO; and, in the case of public companies, by the SEC. Reconciling perception with reality will be difficult at a time when the structures of self-regulation are under intense scrutiny, and especially while the states and the federal government each have their own regulatory and licensing frameworks.

Each individual's position with regard to these three issues will determine his or her stand on the future regulatory framework for public accountancy in the United States after Enron. If you want to share your own opinions or suggestions on these issues, write or e-mail me with your thoughts.

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