Unaccountable Accountants: A Fresh Perspective on How to Regain Public Confidence
April 2003 After a year of corporate scandals, corruption and fraud, the accounting profession has now arrived at an era of reform. Although the Sarbanes-Oxley Act makes executives more accountable for SEC disclosures, and prohibits CPA firms from performing non-audit services for their audit clients, many theories remain on how the profession failed to protect investors and how it can emerge from a sea of negative publicity.
Perhaps one of the most fascinating perspectives comes not from an accountant, but a journalist embedded in a Big Five accounting firm throughout the 1990s, when consulting -- rather than auditing -- rapidly became the most profitable service for large accounting firms.
In Unaccountable: How the Accounting Profession Forfeited a Public Trust, former KPMG communications director Mike Brewster traces the profession from its birth in the Middle East, to the rise as one of the most universally respected in the world, to the fall of Andersen and passage of the Sarbanes-Oxley Act. Brewster shares his first-hand experience working for an accounting firm during the consulting boom, and proposes how the industry can fix its broken model.
The title of the book may be construed as a negative portrayal of accountants and the multi-billion dollar industry, but Brewster asserts that the title represents his theory that the profession has forgotten its historical roots and purpose, and lost its intellectual bent.
"Current auditors have lost the ability to think about what their job is," Brewster told SmartPros in an exclusive interview. "I go back [in history] to show how for thousands of years people who managed financial information were really the most trusted and powerful people in society."
In Unaccountable, Brewster focuses less on his employment at KPMG, where he helped top partners write business proposals to win large clients, and more on his overall experience inside the industry. Combined with his journalism background, he explains how the industry shifted away from its original purpose. For instance, Brewster explains that:
Unaccountable foresees a variety of methods to put auditors back on track. Ethics education – already exploding on college campuses – and a renewed focus on fraud detection are among the essential components.
"Far fewer people entering the profession are from the top 10 percent of their class," he explains. "The fear of a lot of people who advocate consulting say [without consulting services the profession is stripped of creativity and left with] a bunch of number-crunchers. But the problem with this argument is that accountants can still consult their clients even while having to charge to be more of a fraud detector."
Moreover, despite the profession's insistence that fraud detection is not a part of the accountant's job description, this is exactly what investors and regulatory agencies want the profession to focus on, says Brewster.
"Strengthening the audit is the biggest thing we have to do here. I think that's been lost with all [the regulation] that's been going on," he explains.
Additionally, Brewster suggests specific changes to the audit system, such as replacing the "Pass/Fail" audit report with a graded report, and raising the audit report's level of materiality.
"One mistake under one million dollars isn't material," he says. "With the rise of the risk-based audit in the 1980s, when accounting firms were trying to look at a company's business risks and processes, they were missing pretty big mistakes. All of this is adding up. We have to strike more of a balance between the risk-based audit and detailed reporting."
When explaining what he wants readers to take away from his book, Brewster expresses his admiration for the profession, and the importance that people don't stereotype it as corrupt. "Accountants are really smart people" who can regain their previous stature as highly respected professionals, he says.
"The profession isn't in that bad of shape," Brewster concludes. "With some change and incentive they can emerge out of this."
Unaccountable: How the Accounting Profession Forfeited a Public Trust is now available for purchase. Save 15% with your SmartPros discount code W4448 (expires April 30, 2004).2003 SmartPros Ltd. All Rights Reserved.