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How Do You Know?

4 Pages 1034 Words


ETHICS

In the hallways of accounting schools, jokes about "business ethics" as oxymoronic are pretty standard fare.

Nobody's laughing now.

The accountants at Arthur Andersen have shredded their way to a criminal conviction. WorldCom, Adelphia and Enron have imploded. On the stock market, investors have started adjusting for fraud, making an assumption about widespread corner-cutting that is driving prices down.

With each shell-game revelation, the assertion that there are only a few rogues in the accounting barrel becomes more suspect. Congress is crafting legislation to broaden oversight. And George W. Bush, the first president with an MBA, wants more jail time for culprits who cook the books.

In 1934, in the midst of the Depression, the securities acts began requiring public companies to have an annual audit. Only certified public accountants can do this. The auditor is charged with checking the company's financial statements and its adherence to generally accepted accounting principles. But critics say the prosperity of the 1990s seduced many auditors into accepting work as consultants, too. That puts the watchdog auditor on management's team. Arthur Andersen simultaneously earned tens of millions of dollars for its Enron audits, and tens of millions of dollars as Enron consultants.

"Step one is to do away with this conflict of interest," said Earl Spurgin, a CPA who teaches business ethics at John Carroll University.

"Imagine George Steinbrenner, owner of the Yankees, also umpiring the games they play in. Maybe he could do it, but it sure wouldn't look good."

CPAs have enjoyed a clean-cut, if nerdy, reputation for a long time. Now, Jerry Weinstein, chairman of John Carroll University's Department of Accountancy, said he has noticed a shift in news reports away from "accounting profession" to "accounting industry, like we were steelworkers or something." That shift pains him.

"Right now, there is a...

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