“Upholding the Public Trust”
Remarks Prepared for Delivery by
William F. Ezzell
Chairman of the Board
American Institute of Certified Public Accountants
to the
2002 AICPA National Conference on Current Securities
and Exchange Commission (SEC) Developments
December 12, 2002
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Thank you. You may have noticed I’m not Harvey Pitt, who was scheduled to be with us
today as keynote speaker. We even considered inviting the chairman of the new Public
Company Accounting Oversight Board. Harvey Pitt and William Webster were potential
speakers, and I’m the one who actually ends up standing at the podium. I hope someone’s
not trying to tell me something.
There is one upside for me in getting the chance to pinch-hit. It gives me the opportunity
to talk to a large number of AICPA members about what we are doing to restore the
reputation and purpose of accounting and auditing – and what all of us must do to ensure
that the future of our profession matches and exceeds its legacy.
I want to thank all of you for being here today for our 30th annual conference. This
impressive milestone is a testament to the longstanding cooperation of the SEC, standard-
setters, preparers and auditors on issues of mutual concern to us and to the investing
public.
We have a record number of people -- more than 1800 -- registered for this conference. I
want to say a special hello to our counterparts at the Canadian Institute of Chartered
Accountants, who are joining us via videoconference. Thank you for being with us.
Your participation is just one indication of the global interest in the challenges we face,
and the worldwide impact of our response to them.
Let me begin today by saluting all of you in the audience -- CPAs, preparers, auditors,
and regulators alike. You have shouldered many new responsibilities over the past year
and are being called on to meet additional reporting responsibilities and accelerated
reporting requirements. I know you will meet those increased challenges with skill and
dedication.
I’m grateful to many individuals for their work in pulling this conference together. Jay
Hartig and the other member volunteers who served on the conference planning task
force; Cathy Brosnan, Stephanie Finn and Jean Stone of the AICPA staff and Scott Taub
and Craig Olinger from the SEC staff deserve special recognition for their efforts.
We’ve been fortunate to have with us at this conference some terrific speakers from the
SEC and the profession. We’re glad to see the Administration is moving swiftly to fill
open positions in the SEC and other agencies – we think this is important for the capital
markets. I especially want to recognize Acting Chief Accountant Jackson Day, and the
other staff in the Office of the Chief Accountant and Corporation Finance and
Enforcement Divisions who have been sharing with us their insights into the reforms they
are helping put in place. The SEC commissioners and staff have worked tirelessly over
the past year, and I want to thank them for their efforts and for their participation. I know
the past few months have been especially grueling.
We also heard yesterday from Charles Niemeier, who reflected on the challenges facing
the PCAOB. We’re very glad he could join us.
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What a difference a year makes. One year ago, on December 2, 2001, Enron sent a
shockwave through the nation when it filed for bankruptcy. The reasons for Enron’s
collapse continue to be analyzed, but to me it comes down to a simple fact: the
company’s leaders put their desire to create wealth for themselves ahead of their
responsibility to create value for shareholders.
What we learned in the weeks and months that followed Enron’s failure was that it was
not alone in betraying the public trust. Other companies had acted irresponsibly, with
devastating consequences for employees and investors. Make no mistake about it: our
profession was part of the problem. Some accountants and auditors were directly
implicated in misdeeds and mismanagement.
As you know all too well, the revelations of the past year triggered investigations,
litigation, regulations and legislation. The economy faltered, in part due to the uncertainty
felt by retail investors who are critical to the market’s long-term health. Our profession
was put under the microscope, and our practices and policies subjected to intense scrutiny
and criticism. An article last week in The Economist magazine said that over the past
year, as a result of the corporate scandals, accountants had become “less trusted even than
politicians and journalists.” Talk about a low blow. That depressing assessment really
sums up just how painful and difficult a year this has been for our profession.
Over the past year, all of us have asked ourselves, “How did this happen?” In some cases
the answer lies in human hearts corrupted by greed and arrogance. In others, we see
human failure to stand up for what’s right in the face of intense and misplaced pressures
to meet financial targets in the accounting department rather than the marketplace. Some
auditors assumed good intentions when they should have been much more skeptical.
Others adhered to GAAP rules but failed to exercise the judgment investors demand.
From today’s vantage point, we can see that there were warning signs of potential trouble
in a financial reporting system that seemed designed to confuse rather than clarify. We
see that our profession could have done more to monitor itself, and to discipline those
who failed to uphold our standards. We learned that we could always do more to train
new members of the profession and hold them accountable to the highest ethical
standards.
These observations don’t excuse what went wrong…but they do give us some ideas about
how to make things right. Some reforms have already been put in place, and others are
on the way. I will talk about them in more detail in just a few minutes. But more
fundamental than external reforms, I believe, is the need to make changes from within.
What we need now is nothing less than a restoration of our profession. There are three
key areas that I believe need our attention.
First, we need to restore a sense of shared purpose as a profession made up of diverse
people but dedicated to the same overarching goals. The AICPA has more than 350,000
members. Nearly half work within corporations. Many others are in private practice,
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providing financial advice and services to individuals and small businesses. Some
members work for government and nonprofit agencies; others are educators who train the
next generation of CPAs. Our SECPS membership also includes nearly 770 firms that
audit public companies and provide objective advice to corporations and reliable
information to investors. That includes medium-sized and small firms in addition to the
four largest firms. We can draw strength from our different experiences and perspectives,
but we need to be sure that our debate and dialogue doesn’t turn into divisiveness and
dysfunction. Now is the time for us to focus on the things that unite us – first and
foremost among them our commitment to professional excellence and public service.
Second, we need to restore our reputation as a profession that works for the common
good. To do this, we need to re-emphasize the “public” part of the title “certified public
accountant.” Our job is first and foremost to uphold the public trust. No one can give us
our reputation back – we need to earn it, one client at a time. Abraham Lincoln once
said, “nearly all men can stand adversity, but if you want to test a man’s character, give
him power.” Our clients -- whether they are Fortune 500 firms, small businesses, or
individuals -- put us to this test every day, and 99.9 percent of us pass the test with honor.
We need to demonstrate that we have zero tolerance for those few who do not.
Third, we need to rededicate ourselves to the bedrock principles and core values upon
which the AICPA was founded more than a century ago. These principles are spelled out
in our own code of conduct. When you join the AICPA, you accept “an obligation of
self-discipline above and beyond the requirements of laws and regulations” and promise
an “unswerving commitment to honorable behavior, even at the sacrifice of personal
advantage.” You agree that integrity is the “element of character fundamental to
professional recognition…the quality from which the public trust derives” and the
“benchmark” against which all other decisions must be tested.
The vast majority of accountants and auditors willingly accept these responsibilities, and
put them into practice every day. For every one person who violates the public trust,
there are many tens of thousands of men and women in our profession who uphold the
very highest standards of integrity, objectivity, independence, and competence.
In the midst of a business culture that often seems to embrace a philosophy of “anything
goes,” and exerts enormous pressure to “get to yes,” the members of our profession have
a responsibility to be prepared to say “no” in an authoritative and definitive way. Our
commitment is to ensure that financial statements are full, fair and not misleading before
they go out to investors.
Most of us never make headlines, but our actions are critical to the nation’s economy and
the operation of the free market. Auditors and accountants make it possible to unlock
what economist Hernando DeSoto has called the “mystery of capital.” The free market
flourishes only where fair market principles are upheld. Our profession will play its role
by upholding the laws and regulations, as well as the ethical standards and principles that
provide the legal and financial framework within which assets are leveraged and
economic growth and stability are created.
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The continued health of the financial markets and the need to regain the trust and
confidence of the individual investor led Congress this year to pass the Sarbanes-Oxley
bill, a sweeping new law that includes fundamental reforms for the business world. It sets
high standards and imposes stiff penalties. At the bill signing ceremony, President Bush
said that America’s system of free enterprise “requires clear rules and confidence in basic
fairness.” Speaking specifically to our profession, the President said: “the high standards
of your profession will be enforced without exception; the auditors will be audited; the
accountants will be held to account.”
We strongly support the goals of the Sarbanes-Oxley bill. We want to do everything in
our power to make sure the abuses that emerged over the past year never happen again.
We hold ourselves to the highest possible standards, and we expect others to do the same.
The final bill contains many provisions we supported and helped develop. We offered
ideas for reform that became key elements of the new law.
We helped develop the idea that evolved into the creation of the Public Company
Accounting Oversight Board, and we are deeply committed to working with the PCAOB
to achieve the goals we share. We called for a provision that required auditors to be
hired by the audit committee, not management. We supported provisions to expand the
financial expertise and responsibilities of audit committees. We played a role in
developing new restrictions on consulting activities for auditors of public companies. We
worked for improvements in financial reporting and internal controls and supported a
provision making it a felony to lie to an auditor. And we created a public interest test
against which all reforms could be measured.
The final law does include some provisions that we opposed while the bill was being
considered in Congress. That’s typical of the legislative process. But the give-and-take
of the congressional deliberations is behind us now. Sarbanes-Oxley is the law of the
land, and we intend to do our part in its implementation. The SEC and the new Oversight
Board are making a Herculean effort to put the new law into effect and to provide
guidance on its requirements. We appreciate their efforts and applaud their fine work.
The Sarbanes-Oxley bill is a major step forward on the path to reform. But the real work
to restore our profession’s reputation as a steadfast guardian of the public trust is more
personal. That work will be done by each and every one of us in this room during the
course of fulfilling our daily responsibilities. The members of the AICPA – both
corporate accountants and outside auditors -- will be the ones who ultimately determine
whether the reforms contained in the new law succeed or fail.
We will succeed if auditors persistently probe management and insist on answers that
make sense, even if it means rejecting management’s decisions.
We will succeed if preparers stand by their own judgments on accounting issues and
don’t cave when senior management disagrees.
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We will succeed if we retain our skepticism and trust our instincts, even in the face of
intense pressure and the threat of serious consequences.
We will succeed if we make sure that audited financial statements are clear and reliable
and are presented in a way that is accessible and understandable to the average investor.
We will succeed if we remember that saying “no” to misguided or deceitful practices
means saying “yes” to the public interest.
We will succeed if we remain true to our core values and principles, and prove by our
actions that we are men and women of character, integrity and honor.
The AICPA is committed to helping us succeed in all these ways. There are three key
areas where we are actively providing leadership and assistance to our fellow
professionals as we work to adapt to the new and rapidly changing post-reform
environment.
First, we’re focusing on improving financial reporting. Making financial reporting more
transparent and accessible is an important building block for rebuilding investor
confidence. Financial statement audits should be crystal clear windows into corporate
America.
To achieve this goal, we’re taking several steps.
• We’ve endorsed a petition to the SEC designed to achieve greater clarity in the
reporting of off-balance sheet obligations and have provided guidance of our own
to improve the quality of the information given to investors.
• We’re supporting the Financial Accounting Standards Board in ensuring that the
reporting model is rebuilt in a way that provides investors with higher-quality
information on a broad array of issues.
• We are part of a global consortium designed to tap the expertise and experience of
financial professionals from around the world in an effort to improve methods of
value measurement and reporting.
• We’re working to develop new approaches to auditing and are engaging with
others more broadly within our profession to address the differing needs of
accountants who serve privately-held and small businesses.
• And we are talking to the people who use the financial statements we prepare to
make sure we respond to their needs.
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A second area of focus for the AICPA is the reform of corporate governance and internal
controls to combat fraud. These are the factors that most influence a company’s ability to
withstand pressures to provide false or misleading information to the public.
We’ve made significant advances in this area.
• We’ve developed comprehensive new guidance for auditors to enhance their
ability to detect material fraud. This guidance was recently approved by the
Auditing Standards Board as SAS 99 and is the cornerstone of our work to
combat fraud.
• We’ve created an “Anti-Fraud and Corporate Responsibility” resource center to
provide information to our colleagues throughout the financial and corporate
worlds. These resources are available at www.aicpa.org and are designed to
prevent, detect, and deter fraud.
• We’ve joined the University of Texas at Austin and the Association of Certified
Fraud Examiners to establish an Institute for Fraud Studies. Through this
Institute, we will support academic research that can provide key insights to help
prevent and detect fraud in the future.
• We’re working closely with our colleagues in the corporate and financial
reporting worlds to share training materials, ideas and best practices so we can all
benefit from what we’ve learned about fighting fraud.
• We’re developing materials on fraud prevention to be incorporated into university
curricula and textbooks.
• And we’re creating new anti-fraud education and training programs for seasoned
professionals who work with publicly traded companies.
Third, we have an important responsibility in ensuring appropriate standard-setting for
our own profession. To fulfill this responsibility, we need to have frequent and fruitful
dialogue with the SEC and the PCAOB. The best example is the almost constant dialog
between U.S. securities exchanges and the SEC’s Division of Market Regulation. We
welcome the opportunity to learn about the issues that concern our regulators. We expect
that they, too, will want to learn from us about the challenges we face and will benefit
from the hands-on experience we offer.
As we look back over the abuses that have been uncovered over the past year, we need to
assess whether the problems arose from the standards themselves, or from the failure to
appropriately apply those standards in difficult and complex situations. The evidence so
far indicates to me that the failure was more related to the performance.
As the PCAOB begins its important work, one of the decisions it will have to make is
whether it will set standards itself or look to other standard-setting processes. We think
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the latter model is preferable. It provides for greater input from working auditors who are
applying the principles in the field and recognizes that the accounting profession operates
in an increasingly global environment. We need to set standards by calling on the
experience of the men and women who are on the front lines, doing audits every day, and
learning from every audit they conduct.
All of the reforms and changes that are underway in these three areas require cooperation
and communication with diverse organizations with varying areas of expertise and
responsibility. The AICPA plays an important role as an advocate and a liaison for its
members. AICPA’s website provides up-to-date information about how Sarbanes-Oxley
and the PCAOB relate to you. We’re taking your concerns to the regulators on a vast
array of issues. We’re also working to ensure that Sarbanes-Oxley doesn’t cascade to the
state and local levels, especially as it relates to companies that are not regulated by the
SEC.
We’re going through a time of testing and adversity. I believe we will emerge stronger
and better than ever. But we still have significant work to do, and the burden falls
heavily on your shoulders. You are being asked to do more, and do it faster than ever
before. I know it isn’t easy.
But the result, I believe, will be well worth the effort. In the years ahead, we will achieve
a restoration of our shared sense of purpose, our reputation, and our commitment to core
values. We will once again be universally recognized as consummate professionals,
serving the public good, who can be counted on to do what is right. The title CPA will
unquestionably stand for integrity and honor and we will claim it with pride.
Thank you very much.
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