Accounting Professionalism—They Just Don't Get It!

INTRODUCTION I realize that my title contains two ambiguous pronouns--"they" and "it." After reading this commentary, I hope you will be able to identify who is "they" and what it is that they don't get. The accounting profession has been beaten up badly in the media over the last few years, and with some justification. The forces at work were numerous and complex and different investigators place emphasis on a variety of phenomena that created the environment in which Arthur Andersen disappeared and the reputation of the entire profession was tarnished. Some of these forces were not new, such as: * corporate and individual greed, * delivering services that acted to impair independence, * becoming too cozy with clients, and * participating actively in finding ways to avoid the provisions of accounting standards. What was new is that the profession's historical defenses to combat these forces proved ineffective. The bottom line is that the profession--indeed, society as whole--has paid a high price for the accounting profession's failure to meet the expectations of investors, creditors, and other users of financial statements. This commentary attempts to identify the core of the problem. I will also make some suggestions on how the profession can prevent a recurrence of the recent bad times, and how educators may better prepare entrants to the profession. My observations are based upon observing the profession's evolution over the past 50 years and participating actively in it for nearly 40 years. My comments will frequently refer to Arthur Andersen, since that is the only firm with which I had substantive experience. Those comments are not intended to be praiseworthy, apologetic, or critical of Andersen. Rather, they merely will help illustrate the world as I saw it over a good many years. PAST EMPHASIS ON PROFESSIONALISM Some historical perspective helps set the stage for understanding how accounting professionalism gradually lost significance in the 1980s and 1990s. In the 1940s, even the large accounting firms were not very big entities. When I graduated from college, Andersen was the 12th largest firm--in Chicago--and had about 30 partners. Andersen was a part of the Big 8 by the mid-1960s, and it was probably seventh in size, with about 350 partners around the world. Accounting education in the 1950s and 1960s focused more on professionalism and the accounting code of ethics. Nearly all entrants to the large firms were recent college graduates whose courses in auditing focused on professional responsibilities and the importance of ethical behavior. The apprenticeship approach inherited from the United Kingdom was a thing of the past, and the hiring of experienced individuals with diverse business backgrounds had not appeared on the scene. The American Institute of Certified Public Accountants (AICPA) was mostly a professional organization whose senior committees developed the professional standards that guided accounting decisions and auditing approaches. Jack Carey was the Institute's most significant spokesman, and his focus over the years was on heightening the awareness of the importance of ethical professional behavior. Only later did the AICPA become, in effect, a trade association with only limited impact on matters of professionalism and ethical behavior. The large firms were headed by a leading accounting professional, often one who had risen to the top of the firm based upon acknowledged know-how, exposure to diverse accounting issues, and honed technical skills. These individuals were often well known in the broad business community and were active outside their firm. The firm leaders used articles and speeches to articulate the nature of the profession and its importance to our business and commercial system. They spoke out forcefully on the issues of the day, often without regard to whether one or more clients might find their remarks objectionable. …