I stated before ("Harvey Pitt Has to Go") that one piece of evidence was his slowness to respond to the Enron debacle. In his January 18 speech, Pitt states that "corporate governance and accounting practices has shown serious signs of failing to keep up with the needs of today's investors …." He then claims that accounting needs to modernize what it does so that the profession can respond more efficiently to the needs of its clients. The difficulty with this position is that Pitt said precious little about the lies and thievery that took place, demonstrating to me that he doesn't get it. Instead of exhorting managers, auditors, and directors to tell the truth, he wants them to update their technology and provide greater efficiency in the data processing. That speech serves as evidence that Pitt is attempting to protect his former clients. Yes, of late Pitt is saying and doing the right things, but I wonder whether he means it or whether he is merely realizing that his job is in jeopardy.
 
In a recent column in Accounting Today, Eli Mason reminds us that Harvey Pitt wrote Serving the Public Interest: A New Conceptual Framework for Auditor Independence, which was published electronically October 20, 1997 by the AICPA free of charge on its website. This text dashes any claims that Harvey Pitt can lead the SEC to clean up the current disorder. His writing this book proves that he is for loosening rules about auditor independence, and he is willing for external accountants to engage in various conflicts of interest as long as it helps the client. Given that these items are among the causes of the economic mess that we are in, we discover that Pitt espouses what we must purge.

 

For example, he proposes that firms design their own independence rules. That’s right, Pitt wants auditors to decide for themselves what they can and cannot do and then tell the rest of the world what these rules are. No need for consistency among accounting firms; no need to determine whether it meets investors’ needs. Just decide your own rules and follow them. If we ever go down that path, I doubt that a single independence violation would ever occur!

 

The public interest is re-defined as meeting client needs. That’s right, the so-called public welfare becomes sacrificed on the altar of CEO requirements. What the client wants, the client gets! Since top executives everywhere have the interests of others at the top of their minds and hearts, we can rest assured that these CEOs will serve the country well!

 

Pitt also claims that there is no evidence that non-audit services impaired independence in performing an audit. While evidence does exist and has simply been ignored, I’ll simply reply that Enron now serves as the classic case where Arthur Andersen employees were scared to death to enforce the accounting rules because of how much money Enron brought them. How much more evidence do you need?

 

Mike Sutton, then Chief Accountant of the SEC, wrote a critique of this report on December 11, 1997. He complained that the account lacked balance and ignored the investor’s point of view. He concluded, “From the Commission’s perspective, the goals of strengthening the quality and independence of audits are clear and unambiguous—it’s all about maintaining investor confidence in the fairness and honesty of our securities markets.” Because of this stinging rebuke, the AICPA removed the book from its website, placing it in a virtual dust bin, a black hole from whence it should have stayed in the first place.

 

Pitt has written eloquently for loosening independence and allowing CPAs to enjoy a variety of conflicts of interests so that they might better serve corporate clients—and make more money in the process. While there’s nothing wrong in making some bucks, there can be problems in how you earn them. Selling yourself out to corporate clients when you have clear and well defined obligations to the investment community is unacceptable. This type of thinking got us into this stock market downslide. To restore investor confidence, let’s get rid of those who think it’s ok to compromise how we audit corporations.

 

Recently Harvey Pitt put the icing on the proverbial cake by surprising many observers with his proposal to elevate the SEC chairmanship to a cabinet post. In a city where ego is king, Harvey wants to be emperor.

 

I repeat -- Pitt has to go.

 

Write to the author with your thoughts at k55@psu.edu or to SmartPros Letters to the Editor at editor@smartpros.com

J. EDWARD KETZ is associate professor of accounting in Penn State's Smeal College of Business Administration.