CPAs Responsible for Enron Crisis

Remember the savings and loan crisis? From my perspective, my profession is responsible. Enron Corp. is no different [“Enron Will Spur Reform but More Is Needed,” James Flanigan, Jan. 27].

Certified public accountants have forgotten how to do their jobs. When I started in the early 1970s, the primary responsibility of CPAs was to ensure that financial statements were not misleading.

Practically all financial statements today are in fact misleading. But the real underlying problem is the cutthroat bidding and cost cutting for audit pricing. Audit pricing at all levels is underbid and sold below cost.

I recently lost two audits to competing bids that were half the fee I had bid. There was no practical way another CPA could audit these entities for less.

Last year Microsoft Corp.’s Securities and Exchange Commission statement said it paid $5 million for audit fees. At an average $200 per hour, that amounts to 25,000 hours.

Assume an average 2,000 hours for one full-time auditor, and that equals 12.5 auditors working all year to audit a multinational, multibillion-dollar business.

There is no practical way 12 people could keep up with the hundreds of accounting staff at Microsoft.

The bottom line is that we all get exactly what we pay for. I hope that the Enron fiasco will bring real practical auditing back to business.

C.D. Giedt, CPA

Newport Beach

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One of the subjects that you didn’t touch on is the need for immediate and dramatic change in corporate tax shelters.

Large accounting firms (primarily the Big Five) have been promoting corporate tax shelters for the past few years. (I noticed Enron hasn’t paid any income taxes for four out of the past five years.) They have been going to clients and non-clients and telling them they can structure a deal under which they won’t have to pay any income taxes.

Many of these shelters are way past the “gray” areas of the tax code. These accounting firms are not passive participants in these shelters. They are actively promoting them to anyone who will listen.

Having practiced on both sides of that equation, I have seen that the size of the CPA firm makes very little difference with regard to the influence that companies exert over their outside accountants. It really comes down to the integrity of the people involved.

Arthur L. Berkowitz, CPA

Aliso Viejo