Issue of the moment
Now Williams' warning is on everyone's lips. In the wake of recent big audit failures at Cendant Corp, Waste Management Inc and many dot-coms, the big accounting firms are rushing to shed most consulting.
Still, not too long ago, companies such as Enron even began outsourcing internal audit functions to their outside auditor -- a process obviously rife with conflict-of-interest issues.
US Senator Ron Wyden, a Democrat from Oregon, sounded the alarm more than 15 years ago while serving in the House. "It's like watching a baseball game where the same person is the batter, fielder, baserunner and umpire, and then sells popcorn, takes tickets and sings the national anthem," he said.
If anyone is listening today, auditors can be made more independent. Public companies should pay their audit fees into a government-regulated pool, from which outside auditors would collect fees. This would stop the cops from being paid directly by those they are supposed to police.
There should be no financial link between the audited company and the auditor. Outside auditors should not -- repeat, not -- do any consulting work for audit clients, especially not handling the clients' outsourced internal audit function.
Auditing firms should be rotated every five years or so, enabling them to remain independent from clients. And last but not least, all accounting education should stress ethical behavior above toting up the numbers.
Hopefully, the Enron scandal can spur such reform because the stakes are so high, the losses so pervasive and the headlines so glaring. But after decades of deception, it's hard to imagine that accountants, once labeled the Escoffiers of fraud, will stop helping their clients cook their books. Greed has a big appetite.
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