Accounting.

• Position: Industry Outlook - Panel Discussion

ENRON, WORLDCOM, even homemaking icon Martha Stewart -- all are casualties in America's attack on fraudulent accounting and investing practices. In the shadow of these now-infamous cases, local CPAs gathered to discuss new legislation, professional ethics, and the future of the accounting industry at Utah Business magazine's December Executive Roundtable.

Participants included Brent Anderson, Grant Thornton; Paul Child, Deloitte & Touche; Ray Ellison, Tanner & Co.; David Jolley, Ernst & Young, LLP; Janis Kline, Pinnock, Robbins, Posey & Richins PC; Tim Larsen, Squire & Co.; Joe Leverich, The Leverich Group; Dave Lewis, Huber, Erickson & Bowman, LLC; Craig Omer, KPMG, LLP; E.J. Passey, CBIZ-FPG Business Services, Inc.; Scott Pickett, PricewaterhouseCoopers, LLP; Harlan Schmitt, Schmitt, Griffiths, Smith & Co.; Marty Van Wagoner, University of Utah; and Bruce Wisan, Wisan, Smith, Racker & Prescott.

Special thanks to Fred Streuling, professor of accounting at Brigham Young University, for moderating the discussion.

What is good about the Sarbanes-Oxley Act (SOA)?

WISAN: Corporations are taking responsibility for their financial statements, especially the key corporate officers. I like the enhanced criminal penalties for fraud. The elimination of loans to officers is a move in the right direction. I like the trading restrictions placed on officers of the corporation.

KLINE: One of the issues it deals with that is positive is accountability of corporate officers and accountability inside the corporation instead of, "The auditors are accountable." It isn't the auditor's financial statement; it's the company's financial statement.

JOLLEY: It highlights the role of the audit committee. Too many times we have seen audit committees that are asleep at the switch.

CHILD: The relationship of the external auditor is through the audit committee. It places significant responsibilities on the audit committee to he involved in company matters, perhaps things they should have been doing all along.

What's bad about SOA?

WISAN: There are too many restrictions, prohibitions on activities that CPAs can perform for their audit clients. The act specifically mentions tax services as an item that requires approval from the audit committee. I can't imagine hiring a CPA firm to do financial statements and then hiring another firm to do the tax return. It does happen, but it's not very efficient.

PASSEY: Every time there's a business failure, it gets flipped into an audit failure, so we have jumped through the hoops of peer review and other things within our profession. If this doesn't work, and there is another failure, and there will be, then does the SEC assign auditors, set fees, and eventually the next step of evolution is that we all work for the SEC?

JOLLEY: Financial statement fraud has always been illegal, so I don't know that SOA has given us any new laws that are going to further that along. One of the things that SOA does not address is the underlying pressures that have caused many of these public companies to do the things that have gotten them into trouble, and that is the expectations the analysts set and push them to. That hasn't been addressed.

ANDERSON: It is going to make it difficult for us to distinguish between our role as auditor and being able to give sound business advice at the same time.

PICKEIT: As you think back over the Enron and the WorldCom failures, I don't think SOA solves one of the critical problems. I don't think any of us face this, where we have one client that is so critical to our portfolio that we would lose judgment. It is safe to say with the CPAs in Utah as a whole, we don't put ourselves at risk by taking stupid positions with the client, because we don't want to risk our integrity and our future and our profession.

Will the five-year rotation of lead audit partner take care of that?

OMER: I don't see a significant enhancement of independence as a result of that rotational rule. One of the things we have all been concerned about is that with time and with regulatory influence, the impetus would go in a very adverse direction, that being to cause the rotation of firms in a five-year period of time. Fortunately, the regulation stops short of that.

CHILD: The five-year rotation does put significant burdens on the audit firms and the individual partners serving those firms, because now many of their lives are changed and they have to rotate off after five years. For a smaller firm, it provides increased challenges, because you only have so many partners that you can bring onto an engagement.

OMER: It makes increased costs, indirect and direct. One of my concerns is the cost associated with the implementation of the rules relative to small SEC clients, and there are a lot of relatively small SEC clients in this city that we serve.

PICKETT: Going back to separating tax and audit, the inefficiencies there will translate into higher fees.

JOLLEY: If you look at the top 100 public companies in Utah, there's a steep cliff after about number 20 or 25. As you look at some of these microcap companies...