| Reconciling
Image with Reality
In
our October 2004 issue, an excellent article by Robert L.
Bunting (“Transparency: The New Peer Review Watchword,”)
presented a refreshing policy position. Bunting, elected
last month as AICPA chairman, is firmly committed to reforming
the peer review and quality assurance systems and views
this as a critical step toward greater transparency throughout
the profession. A underlying aspect of this initiative is
the gap between the public’s image of CPAs’
responsibility and the reality.
Public
Expectations
For
example, a popular but erroneous belief among corporate
stockholders and the general public is that the objectives
of CPA audits of public companies include rooting out fraud
and verifying every aspect of the financial statements.
Moreover, the public also believes that the audits of entities
such as nonprofits, school districts, municipalities, and
governmental, and quasi-governmental agencies not only ensure
that their financial statements meet accounting standards,
but also verify that an entity’s expenditures are
in line with its mission—what the Yellow Book auditing
standards refer to as performance audits. But in practice
this level of auditing is rarely done, and many government
agencies are not audited. New York State Comptroller Alan
Hevesi’s audits of more than 20 of New York’s
700-plus public school districts have made headlines, and
I think it’s because people recognize that the financial
problems in some districts may be only the tip of the iceberg.
(See the interview with Hevesi in the October 2004 Journal.)
Another
myth is that the audits of government agencies and nonprofits
are presented to their board of directors and audit committee,
when in many cases only the entity’s executive staff
sees the audit. Many people have called for mandatory auditor
rotation as a way to improve accountability. The NYSSCPA
has always opposed auditor rotation because there aren’t
enough audit firms with the right experience to audit all
of the entities and businesses that would be affected, and
many small CPA firms don’t have enough audit partners
to rotate them. Also, many government entities and nonprofits
give scant attention to their bidding and to RFP policies
and practices for audits. So such entities’ problems
are probably both broader and deeper than the audit itself,
and pervade many levels of the organizations’ management
and governance structures.
Changing
the Status Quo
The
status quo for the selection of many entities’ officers
and board members is to appoint people based on their dedication
to the organizational mission, often limited to their programmatic
or fundraising ability; managerial or financial expertise
is generally secondary at best. Boards must change their
mindset about job qualifications for these positions, and
then arrange the necessary organizational resources to facilitate
complete, objective audits, and be willing to pay for them.
Finally,
the media have a vital role in improving transparency in
financial reporting and dispelling erroneous beliefs about
the profession. To that end, the NYSSCPA is expanding its
program of educating journalists about how to understand
financial statements and about auditing standards and practices.
With that knowledge, the media can serve their audiences
more effectively. They can investigate stories instead of
just reporting what they are told, thereby perpetuating
the myths that jeopardize the financial security of our
markets and our country, as well as CPAs’ reputation
and integrity.
Louis
Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA
lgrumet@nysscpa.org
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