Clearly on the defensive following the swift, spectacular collapse of Enron Corp., the accounting profession took several steps on Tuesday to try to preserve its image, trust, and integrity.

In a remarkable, nearly unprecedented development, the Big Five accounting firms — Andersen, KPMG, Deloitte & Touche, PricewaterhouseCoopers, and Ernst & Young — issued a joint press release acknowledging their unique role in the global financial world. The five pledged to deliver proposals for improving their procedures.

“We recognize that a strong, diligent, and effective profession is a critically important component of the financial reporting system and fundamental to maintaining investor confidence in our capital markets,” they wrote. “We take our responsibility seriously.”

On the same day, the American Institute of Certified Public Accountants (AICPA), an organization for CPAs that issues auditing standards through its Auditing Standards Board, proposed changes to current auditing standards. The AICPA said it would propose a new auditing standard early next year for detecting fraud, “after the accounting profession took a credibility hit stemming from the Enron Corp. debacle.”

Meanwhile, in an OpEd column in Tuesday’s Wall Street Journal, Andersen’s chief executive, Joe Berardino, blamed out-of-date rules and the inability of the auditing profession to keep up with changing times for the problems that developed at Enron. Andersen has faced strong criticism in recent weeks because it was Enron’s auditor.

“The current financial reporting system was created in the 1930s for the industrial age,” he wrote.

In addition, several members of Congress set in motion plans to investigate Enron’s bankruptcy and its many participants. The representatives will also look at how Enron’s descent into bankruptcy has affected the company’s employees and shareholders. Here’s a clue: They have less money now.

Big Five Unite

In their joint press release, the five major accounting firms pledged to improve and enhance the financial reporting system. Responding to the issues that have surfaced in the aftermath of the Enron debacle, they pledged, “We are developing specific recommendations to the SEC for improved disclosure guidance on related party transactions, special purpose entities (SPEs), and issues related to market risks, including those relating to energy contracts.”

They promised to deliver recommendations by the end of the month and urged that this additional information be available to investors as early as the 2001 annual reports.

The Big Five also promised to work with the SEC to help modernize the financial reporting system, which they said is long overdue. “Too often, financial statement disclosures are plentiful but may lack meaning,” they wrote. “Many different streams of information — not just earnings — are needed for informed decision-making, and backward-looking financial statements delivered on a periodic basis no longer are sufficient to communicate real value and risk.”

The accounting firms also pledged to find ways to streamline and modernize the reporting system.

They also said they are preparing an assessment of risk factors that may be important for financial-statement preparers, audit committees, and auditors to consider during the current reporting cycle.

“Last year, the independent Panel on Audit Effectiveness issued a comprehensive report on audit process improvements,” the press release said. “Many of the recommendations have been put into place and the others are under active consideration. We are committed to timely implementation.”

AICPA Promises Its Own Proposals

Meanwhile, the AICPA promised that by early next year it would weigh in with its own proposals for a new auditing standard for detecting fraud. That’s just one area the AICPA is looking at in the wake of the Enron embarrassment.

The association said it would make recommendations to the SEC on disclosing special purpose entities — those off-balance sheet financial vehicles that were at the heart of the Enron collapse.

The AICPA said that next year it would issue revised auditor standards for the review of quarterly financial statements and an exposure draft on improved audit standards to help auditors assess the risks of material misstatements.

It also said it would provide information for company management and audit committees on new measures for deterring fraud, such as internal control procedures.

In addition, the association would prepare an auditor “tool kit” with information and suggestions for auditors on recording related party transactions.

Andersen’s Berardino Defends Profession

Meanwhile, Andersen CEO Joe Berardino wrote an editorial for the OpEd page of the Wall Street Journal. In it, he voiced his opinion that the accounting profession is out of date and moves too slowly to keep up with the rapid-fire delivery of information on cable TV and the Internet.

“The current financial reporting system was created in the 1930s for the industrial age,” he wrote. “That was a time when assets were tangible and investors were sophisticated and few. There were no derivatives…No instant stock quotes or mutual funds…And no Lou Dobbs or CNBC.”

At another point in his column, he noted that accounting rules have grown in volume and complexity as auditors have tried to turn an art into a science. He then claimed the profession’s mindset is sometimes more concerned with form than substance. “Enron provides a good example of how such orthodoxy can make it harder for investors to appreciate what’s going on in a business,” he wrote.

In conclusion, Berardino wrote: “Enron reminds us that the system can and must be improved. We are prepared to do our part.”

So, apparently, is the SEC. In June the commission levied a $7 million fine against Andersen to settle charges the firm filed false and misleading audit reports of Waste Management Inc. And back in May the consultancy agreed to pay $110 million as part of a settlement agreement resolving the claims by the Sunbeam common-stock class plaintiff. Although agreeing to settle, Andersen admitted no fault or liability in that case.

Another Precinct Heard From on Capitol Hill

Congress is also getting heavily involved in the Enron controversy.

On Tuesday, Rep. Richard Baker (R-La.), chairman of the House Financial Services subcommittee on securities, said he was concerned about the impact of Enron’s collapse on its employees and on investors.

“We need to find out whether the retirement savings of Enron workers and the mutual funds of a lot of other people were victims of fraud or [of] violations of any existing securities laws,” he said in a statement. “Do we need better disclosures and accounting standards to give investors the real picture?”

Baker and Rep. Sue Kelly (R-N.Y.), head of the Financial Services investigative subcommittee, also announced that they will conduct a joint hearing next Wednesday to examine the Enron debacle. Among the witnesses invited to testify include Enron chairman and chief executive Kenneth Lay, Andersen’s Berardino, and SEC chairman Harvey Pitt.

In addition, a congressional panel probing the Enron collapse on Tuesday asked the SEC to turn over documents related to the firm’s financial records.

And the House Energy and Commerce Committee staff met with SEC officials to map out its strategy for a hearing on Enron’s accounting practices, scheduled for early next year, according to press reports, citing Ken Johnson, a spokesman for the committee.

Finally, the Democratic-led Senate Energy and Natural Resources Committee last week said it plans to look into the impact of Enron’s problems on the U.S. energy market.

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