CPA Kim Peck believes accounting firm Arthur Andersen got a bad rap.
Peck, chief managing partner for Boise CPA firm Grow Rasmussen LLP, said the downfall of Andersen in connection with the 2002 Enron scandal has not had a direct impact on her 27-year-old firm, but may have hurt the accounting industry as a whole.
Andersen employees were accused of shredding important documents about Enron, even though they allegedly knew the Securities and Exchange Commission was formally looking into Enron’s finances.
“It’s been an education process for the public and has brought up a lot of issues the public may not have thought of before, but ultimately I think it was negative for the profession,” Peck said.
Peck, who joined Grow Rasmussen in 1994, leads a staff of 21, including 14 CPAs. The company’s clients come primarily from the medical/dental and heavy construction areas.
“The unfortunate part is that it was just a couple of people, yet the perception is that the whole Arthur Andersen company was corrupt,” she said. “They were an excellent company.”
Mary Lu Foster, senior manager for Boise CPA firm South Johnson & Co. PA, said scandals like that can be a good thing – requiring companies to consciously keep business practices ethically aboveboard – but admitted she doesn’t enjoy the idea of having to prove South Johnson’s integrity.
South Johnson was founded in 1987 with two partners and has grown to a staff of 21, including 12 CPAs. The firm’s duties include working with clients on tax compliance issues, financial statement preparation, estate planning and business succession planning.
“Like any industry, it’s a few bad apples that spoil the bunch,” Foster said of the Arthur Andersen debacle. “In the long term, I think client fees will go up for additional procedures that will have to be implemented. They won’t necessarily benefit the client, but they’ll have to be in place to prove the integrity is there.”
One ramification of the Arthur Andersen saga is the passage of the Sarbanes-Oxley Act. Adopted in 2002, the act requires public companies to validate the accuracy and integrity of their financial reports and internal control environment.
Public companies are required to have established procedures for meeting their reporting obligations, and CEOs and CFOs must make quarterly certifications containing representations on whether financial statements are true, complete, fairly presented, and properly disclosed.
Sarbanes also imposes a requirement upon company management to annually assert to and report on the effectiveness of a company’s internal controls and procedures for financial reporting.
Kevin Andersen, managing partner of Boise CPA firm Balukoff, Lindstrom & Co. PA, said Sarbanes will not likely have much immediate impact on his full-service firm, which was founded in 1986 and employs 29 CPAs, but could have a trickle-down effect.
“It does not significantly affect the way we practice, but the general accounting office of the U.S. government has now adopted tougher independent standards for government audits,” Andersen said. “There are certain services we can no longer do for our governmental clients, such as doing both their bookkeeping and audit work.”
Andersen said one of the biggest misconceptions he’s noticed about the accounting profession since the Arthur Andersen incident is public misunderstanding regarding the purpose of an audit.
“We do audits of financial statements,” he said. “A lot of people think that means we’re looking for fraud-type situations in the organizations that we audit. That’s not necessarily so.”
“Audits originated from the need to verify the accuracy of the balances on financial statements,” Andersen said, “so creditors and investors can know that those numbers reflect generally accepted accounting principals.”
Peck and Foster said a widespread myth about the accounting profession is that CPAs don’t work year-round. Monthly financial statement work with business clients is common, they said, plus many companies operate on fiscal years that do not coincide with the calendar year.v