does ‘corporate america’ really understand?

it depends on who you ask — auditors harbor more doubts than preparers.

by rick telberg
at large

while cpas in general believe that corporate america has room for improvement when it comes to meeting the public’s expectations, those in business and industry tend to take a slightly more optimistic view than their counterparts in public accounting, according to our latest soundings.

when asked whether corporate america fully understands and is properly responding to the public’s expectations for honesty and fairness, more of those respondents who work in business or industry believe that corporate america “gets it.”

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diane klein, a cpa who works in industry in phoenix, says, “the notoriety of the large corporate failures overshadows the fact that the vast majority of public companies in the united states operate within a culture of strong corporate values and ethics — even without the mandates of sarbanes-oxley.”

while klein says the corporate governance mandates of sox provide “a solid framework for ‘best practices’ in this area and have resulted in a significant overall improvement in corporate governance,” she adds that, “sox comes with a very costly price tag for corporations and their shareholders.”

others were more cynical. harley w. pottroff of pottroff accountancy corp. in manhattan, kan., says, “yes, they get it, but they don’t give a damn.” pottroff says, “the pressure to succeed overwhelms their ethics.”

nearly three-quarters (72%) of respondents from business and industry believed that most or at least some of corporate america “gets it,” compared with two-thirds of respondents who work in public accounting who felt that way.

respondents who hail from business and industry were also more upbeat in their assessment of how the american public views corporate america. about half of those in business and industry (49%) think most or at least some average americans believe that corporate america “gets it,” compared with only 32 percent of their counterparts in public accounting who share that view.

“in my experience there is a wide gap between the companies that ‘get it’ and those that don’t,” says janeyce ice, a cpa who works in industry. “many of those organizations that don’t ‘get it’ are lead by management that too easily rationalizes their own lack of integrity, and some actually do not believe that there are successful organizations that truly weave strong ethics and integrity into day-to-day business dealings.”

overall, cpas in both camps gave most major corporations low marks on a number of key governance measures. but accountants who work in business and industry had slightly higher expectations about what governance measures corporate america has in place.

while cpas in industry (46%) and public accounting (47%) generally agreed that most companies don’t have strong executive teams that set a healthy “tone at the top,” slightly more of those in industry — about 43 percent — think companies do have strong executive teams, compared with roughly 39 percent of those in public accounting.

the vast majority of respondents (69% in industry and 75% of those in public practice) don’t think most boards are well-informed and truly independent. as for views on whether the vast majority of companies have a strong code of conduct, far more cpas in industry said yes (62%) than in public accounting (42%).

most members of both groups said they don’t think most companies divide the chairman and ceo jobs between two different people. the two groups were also largely in agreement on their view that most major corporations use an external law or cpa firm to audit compliance issues.

[first published by the aicpa.]

3 responses to “does ‘corporate america’ really understand?”

  1. mark r. kolman

    this quote in your article is a great one: “the pressure to succeed overwhelms their ethics.” i believe that a lot of corporate executives believe that it’s not possible for their companies to compete successfully without bending the rules. they have to, to keep up with or stay ahead of all of the other companies that are bending the rules.

    mark r. kolman, cpa, cia
    audit manager
    hillsborough county (tampa) fl
    .

  2. l. michael howard, cpa

    personally, i think most ceos at public companies are little more
    than robber barons. they whine and cry crocodile tears about sox’s cost even while they suck out of their companies for themselves way too many resources that should belong to the shareholders . and their boards are nothing more than unindicted co-conspirators.

    l. michael howard, cpa
    .

  3. mary ashby morrison

    i always read & enjoy your column.

    one reason “corporate america” doesn’t really understand is that the facts about enron have been deliberately misstated.

    would it surprise you to know that:

    1) enron executives committed their frauds within enron’s spes or off balance sheet partnerships, none of which were ever andersen clients;

    2) enron bankruptcy examiners concluded that the frauds were “aided & abetted” by international banks which signed documentation — all of which was fraudulent — asserting that they were “investing” in enron’s spes, while taking back oral promises of repayment. in addition to signing fraudulent “investment” documentation, the banks signed fraudulent confirmations, failing to disclose the loans to andersen. meanwhile, the banks recorded the same transactions on their books as loans. the banks were citigroup, jpmorgan chase, bank of america, creditsuisse first boston, royal bank of canada, toronto dominion, canadian imperial bank of commerce, barclays, royal bank of scotland, bt/deutsche & merrill lynch.

    3) the sec enabled enron’s fraud by exempting enron from investor protection laws.

    4) the sec (under the chairmanship of arthur leavitt)granted enron’s exemption at the urging of the house energy & commerce committee (under the leadership of rep. billy tauzin [r-la], rep. james greenwood [r-pa] & rep. john dingell[d-mi]). enron had paid massive political contributions to both republicans & democrats at both the state & federal level.

    5) it was arthur leavitt & the house energy & commerce committe that led the attack on andersen.

    6) prior to initiation of any investigation into enron’s spes (which were clients of kpmg), andersen auditors threw out a large amount of extraneous trash, a routine audit step in accordance with andersen’s document retention policy. this was perfectly legal prior to receipt or discussion of a subpoena. because andersen was not the auditor of the fraudulent entities (nor of the banks who aided & abetted the fraud), the justice dept. couldn’t charge andersen with a poor audit. because the shredding was perfectly legal, the doj did not charge andersen with shredding. instead, the doj c harged andersen with obstruction of justice on the novel theory that politely asking employees to follow a routine document retention policy was somehow a criminal act.

    7) andersen partners were faced with a stark choice. they could lie under oath & plead guilty to a false charge or face certain destruction. they chose certain destruction rather than lie under oath.

    8. the obstruction statute requires that the govt prove “knowingly” “corrupt persuasion” to withhold documents from an “official proceeding”. judge melissa harmon, echoing the doj’s theory of the case & affirmed by the 5th circuit, ruled that it didn’t matter if no one at andersen had thought they had done anything wrong. she defined an “official proceeding” as any question by any govt. official at any time regarding any matter.

    9) there were numerous other irregularities listed in andersen’s appeal to the 5th circuit that, because of the limited time for oral argument, were not heard by the supreme court. for example, judge harmon did not allow the jury to know that andersen had waived attorney/client privilege; thus every paper used by the prosecution was saved by andersen & voluntarily turned over to the sec & the doj. the judge ruled that no matter how many copies of a paper were saved, if one were thrown out, it was obstruction. in a trial supposedly about criminal intent,the judge would not allow any andersen witness to testify about intent, criminal or otherwise. finally, in a trial about witness tampering, the government threatened andersen witnesses.

    the paper attached gives the cites for these surprising facts, as well as many more. because politicians have deliberately mistated facts to cover up their own corruption, nothing has been done to address the very real problems.

    mary ashby morrison
    cpa – inactive
    retired college professor
    edmonds wa
    .