October 2, 2003
PCAOB's Niemeier Offers Strong Words for Accounting Profession
By Amy Corenblith
|
For years, the accounting profession was self-regulated. Accounting firms would sift through each other's documents to make sure everything was in order. In all those years, there wasn't one major flaw reported.
"So, how in the WorldCom did we get here," asked Charles D. Niemeier, current member and former acting chair of the Public Company Accounting Oversight Board, in a Lyceum Speaker Series talk with McCombs students Oct. 1.
Niemeier likened the old system of accountability in the accounting profession to penguins in captivity that swim around endlessly in circles because they feel they are supposed to migrate, although they are actually going nowhere.
"The penguins were steadfast and earnest, but going nowhere," Niemeier said. "This is what we were doing with financial transactions, except it was, 'You give me $100 million, I give you $100 million, we both just made $100 million.' Auditors already knew the problems, they just didn't report them."
Niemeier cited a preoccupation with "checking the boxes, not the substance" as a major cause for accounting scandals. Once a company started tweaking its numbers, they could not stop, he said. "There's a lot of pressure to reach that target," he noted. "Companies were brutalized if they didn't. The inflated results become the floor on which future results are reported."
The inception of the PCAOB will greatly improve accountability in the industry, Niemeier said. It will conduct inspections of all accounting firms, making the process more consistent and reliable. "Instead of being reactive the idea is to be proactive," he said. "That's a big change."
Note to the McCombs community: Niemeier will be returning to campus Oct. 29-30 for the BusinessWeek CEO Leadership Forum on Restoring Corporate Integrity and Public Trust, an event jointly sponsored by BusinessWeek and McCombs Executive Education. See news release on the forum for more information.
Other Notable Soundbites from Niemeier's Oct. 1 talk:
On Accounting Scandals:
"Enron and WorldCom were not anomalies. The only thing that would have been a surprise was if Enron and WorldCom didn't happen."
"Verizon fired their line manager because he couldn't keep up with WorldCom. No one could-they were defying gravity."
"The accounting profession purposely partnered with clients. An auditor would identify ways to help, which is not an inherently bad thing, but they didn't use integrity."
"Audit committees have been too quick to go along with whatever management wanted."
"If you take a frog and put it in boiling water, it'll jump out. If you put a frog in cool water and slowly bring it to a boil, you'll boil him alive. These misleading numbers didn't happen overnight. They gradually built up until it was too late."
On Investors:
"Investors want to know, 'How's the company doing? What are the trends? Are the operating results up or down?'"
On Changes in Auditing:
"New rules are not necessarily needed. We say, 'Just disclose it' if you're not fairly reporting something. If you're finding a way around a rule, just disclose it. Just tell us you're flying to Dallas by way of the North and South poles. No one will do these transactions if they have to disclose it."
On the Role of the PCAOB:
"We will have the overall picture. We can see into the public companies. We have an insight far beyond what the public sees. Enron had contracts 30 years in the future that they were taking in as revenue. We will see that."
"Firms will be registered with us and we will have an enforcement program. Our job is not to go hang people, but if they do not comply we will enforce. Our death penalty is deregistration."
"Auditors are not going to put up with it anymore. We will protect auditors who want to do the right thing."
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
