Metro Jackson accountants say the fallout from the Enron-Andersen situation has garnered more curiosity than concern from their clients. Instead, the topic comes up more often after work.
“From a client viewpoint, we haven’t had a lot of concerns expressed,” said Arvil Stanford, director of audit and accounting for Jackson-based Horne CPA Group. “But when we go to dinner parties or to family functions, it seems to be the topic of choice.”
Jobie Melton, independence and compliance coordinator for Horne CPA Group, recently wrapped up audits for community banks, which make up a large part of his clientele.
“Virtually every client I’ve visited with, and every board’s audit committee to whom I’ve made a presentation, has made this a major topic of conversation, but I think it’s been more out of curiosity than concern,” Melton said.
Dan Holliday, CPA, managing partner of the Mississippi division of Enterprise, Ala.-based Carr Riggs & Ingram, LLC, said the picture of the accounting industry “couldn’t be painted with one incident.”
“The jury’s still out on how long there have been problems at Arthur Andersen,” he said. “I applaud Capitol Hill for looking at both sides instead of just looking at the firm. They’re also looking at management that made the decisions.”
Beth Burgess, president of Burgess, Crechale & Necaise, P.A., of Flowood, said the situation “makes some of us look underhanded. I resent that.”
In 2001, Arthur Andersen’s revenues totaled $9.34 billion, with assurance and business advisory accounting for nearly half of the big five accounting firm’s income.
Industry-wide, audit and assurance services generate 27% of an accounting firm’s practice, and consulting generates 15%. Tax services reflect 39%, general accounting, 12%, and other services, 10%, according to industry data compiled by the Accounting Office Management and Administration Report in January 2002.
With more than $20 million in revenues in 2001, Horne CPA Group, the largest accounting firm in Mississippi, one of the top 10 in the Southeast, and No. 60 in the U.S., according to the Public Accounting Report, generated revenues as follows: tax, 27%; consulting, 25%; audit/assurance, 22%; general accounting, 21%; and pension administration, 5%.
“We maintain balance and independence between consulting and auditing functions by breaking down core services like auditing and tax preparation,” said Stanford. “We have a group of team members for our clients that might include a consultant lead, an audit lead, a tax lead, and these people are seasoned individuals who can lead without being impeded by other services we deliver.”
Melton, who is responsible for making sure company employees adhere to professional requirements, said accountants have expanded service offerings in the last quarter-century.
“From a fact standpoint, those offerings don’t impede our independence, but from an appearance standpoint, it has become obvious that they do,” Melton said.
Accountants’ reaction is mixed about whether or not the removal of the “aider and abettor” rules that removed liability from consulting advice in the Private Securities Litigation Reform Act of 1995 helped set the stage for Enron’s alleged wrongdoings.
“I’ve been involved in independence issues for some time now, and I don’t ever recall that being brought up as a way to relieve us from responsibility,” Melton said.
Holliday said, “There’s a possibility that some self-examination has to happen (in Congress) too. I think you have to revisit anything done in the securities acts.”
Stanford said the accounting industry would probably reorganize its disciplinary bodies and determine discharging responsibility, but “we don’t know specifics yet.”
Most proposals mentioned have involved public companies, Melton said.
“In Mississippi, we have only a handful of public companies,” he said. “It’s a lot easier for large public companies to find one firm to do consulting work and another to do auditing work. Small businesses and family-owned companies rely more on their accountants as business advisors as well as auditors. If substantial restrictions are placed on our ability to do non-audit services for audit clients, especially when those clients are small businesses, it could have an unfortunate negative effect by primarily making our services more expensive and less accessible because they would have to find several different firms to seek the advice they need.”
Accountants are apprehensive about potential “over regulation” in an already very regulated industry, Burgess said.
“National and international firms deal with a much different clientele than we do in Jackson, but we’ll all be affected by the same rules,” she said. “We may be dealing with mom-and-pops, but will be held to the same standards as someone dealing with an international company.”
Giving clients advice on routine matters may be affected, Burgess said.
“Some people rely on us for almost every financial decision they make,” she said. “They may want to know whether to lease or buy a car, what kind of checking account to open, or if they should merge with another firm.”
Holliday said advice-giving could be construed as consulting.
“As a profession, we have to be careful about going too far, but we don’t need to miss the big picture either,” he said. “There may be a lot of client-driven changes to clear up any perceived problems with consulting vs. auditing issues. They may be looking at firm A for consulting and firm B for auditing.”
Insurance backlash hasn’t been discussed much publicly, Holliday said.
“There’s no question that there will be problems down the road with reinsurance,” he said. “Professional liability insurance is already extremely high and some smaller accounting firms don’t carry it for that reason. With what has been happening in the insurance industry both before and after Sept. 11, we were already seeing big losses and then this came along.
“The surety industry took it on the chin real hard this past year and 2002 is expected to be even worse, so there will probably be lots of consequences on both the surety and insurance side as a result of the Enron debacle. Ultimately the consumer will pay the piper for all this.”
Holliday added, “At the end of the day, this whole situation will have some lasting effect on the way we all look at our business.”
Contact MBJ contributing writer Lynne Wilbanks Jeter at firstname.lastname@example.org</a.