La última generación de ‘otaku’: una cultura a medida

“The greed and corruption of top executives at Enron, WorldCom, Global Crossing, Adelphia and numerous other major companies has jeopardized the retirement savings of a generation and unleashed a crisis of con-fidence that continues to drain values from America’s markets.

“There is no question in my mind that trusted executives who betray their workers and shareholders are capable of doing far greater and more lasting damage to our nation, our economy and our way of life than any external attacker” (quote by Walter Shorenstein in “Crackdown on business fraud urged at conference,” Jim Christie, November 1, 2002, San Francisco).

The above quote indicates the depths to which the accounting profession’s esteem and that of business in general had sunk by the end of 2002. The period roughly from October 2001 through November 2002 had seen the most dramatic changes in the accounting profession since at least the 1930s. There had been more stories on the profession in the mainstream and business media than ever before. Enron, Arthur Andersen, and WorldCom had become household names. The reputation of North American businesses and their auditors had sunk to new lows. For example, in 2002 Tyco International executives were accused of “looting” their company to the tune of US$600 million and treating its assets as their piggy bank. Similar accusations had been made about executives at Adelphia Communications, Global Crossing, WorldCom, Enron and many other companies.

This dramatic shift in attitudes toward capitalism in general and auditors in particular can be assigned to a specific watershed event—the bankruptcy of the energy company Enron on December 2, 2001. The changes

self-regulation:

a situation where the government gives a professional group the power to monitor and discipline its members

since then have been so substantial that the term post-Enron world has been used to signify the completely altered corporate landscape that has developed since then.

One of the reasons Enron had such a shock effect was that it was considered a “new-economy” company that pointed the way for the rest of the energy industry as it headed into the 21st century. Enron was the poster child of the new-economy company. It had been considered a highly innovative energy company that had branched out into exotic areas of financial engineering related to energy usage, such as weather derivatives. Some of these innovations were successful and have continued. But the majority appeared to have been little more in substance than manipulation of energy prices (leading to widespread blackouts in California in 2000), or shell games with related parties that deceptively hid liabilities and losses on speculation in the direction of energy prices. Rather than an innovative energy company or new-age hedge fund, Enron turned out to be more like a classic Ponzi scheme, relying on attracting ever more investors to continue bidding up the price of the company’s shares.

The aspect of Enron that appeared to enrage the public most was that lower-level employees and others were strongly encouraged, even forced, to invest their retirement savings in Enron stock while top management were selling their shares based on insider knowledge of the disastrous state of affairs. Total losses to sharehold-ers amounted to over US$60 billion, and over 6,000 Enron employees lost their jobs along with their retirement savings. As a result of Enron’s bankruptcy, numerous lawsuits have been filed by the shareholders and creditors against Enron’s management; its board of directors; its auditor, Arthur Andersen; and numerous financial institu-tions, including America’s biggest banks, which were suspected of arranging the sham transactions. In addition to the U.S. Securities and Exchange Commission (SEC), various state regulators launched investigative probes against these same institutions.

Another casualty of Enron has been the accounting profession itself. Of course, the most immediate impact fell on Arthur Andersen, one of the Big Five accounting firms at the time. Right after Enron’s bankruptcy, ques-tions were raised about the effectiveness of its auditor, Arthur Andersen, since there were no official indica-tions of serious problems at Enron until mid-October 2001, when it had to restate previously reported earnings.

(Another characteristic of the post-Enron world is that the number of such restatements skyrocketed across North America soon after the failure of Enron.) Joe Berardino, managing partner of Arthur Andersen, tried to explain the apparent audit failure by attributing the problems to the vagueness of accounting standards and the complexity of Andersen’s financial statements. This explanation might have been more plausible had not Ander-sen been involved in designing these very same transactions as part of their consulting work for Enron. The real problem seems to have been that Arthur Andersen lacked independence because it was auditing its own work.

The accounting profession and the public were shocked by revelations in January 2002 that Andersen was engaged in the shredding of many of its Enron audit documents. This shredding began soon after the SEC announced its investigation of Enron’s accounting in October 2001, soon after Enron’s first announcement of its restatements. Early in January 2002, the shredding practice was made public, and on January 15, 2002, the partner in charge of the Enron audit, David Duncan, was fired by Arthur Andersen. He was later found guilty of obstruction of justice and testified against his former firm. On June 15, 2002, Arthur Andersen itself was con-victed of obstruction of justice as a result of what the jury felt was a systematic effort within the firm to destroy relevant evidence about the true condition of Enron.

This conviction of a prominent auditing firm and its subsequent demise was unprecedented in the history of the profession. The entire profession was tarnished by this fiasco involving one of its most reputable firms.

Arthur Andersen was fined $500,000 and placed on a five-year probation. By then it was already destroyed as an auditing firm. Its clients left, concerned that they would be tainted by Arthur Andersen’s falling reputation. In a matter of months Arthur Andersen was reduced to a shell of its former self. A firm that at the beginning of 2002 employed 85,000 people worldwide and had built an 89-year-old reputation of high integrity and excellence was essentially destroyed by the time of its sentencing on October 26, 2002. Even though the U.S. Supreme Court later overturned Andersen’s conviction, Arthur Anderson was no longer a viable business. There are now only the “Big Four” instead of the “Big Five” accounting firms, and these “Final Four” are now redefining their roles in the post-Enron world.

Unfortunately, it was not only Enron that reshaped the auditing world. Enron was the United States’

seventh-largest firm when it went bankrupt. It was the biggest bankruptcy ever at the time. But it was soon followed by yet another, even bigger bankruptcy—that of WorldCom on June 25, 2002. WorldCom was the back-bone of the Internet, until its bankruptcy carrying about half of all Internet traffic, and was the United States’

fifth-largest firm at the time of its bankruptcy. Total estimated losses to shareholders were US$180 billion, and 17,000 employees lost their jobs. Arthur Andersen was WorldCom’s auditor as well.

Enron and WorldCom were not Arthur Andersen’s only problem audits. Throughout 2002 every week seemed to reveal a new corporate scandal involving deceptions in audited financial reporting. Although Arthur Andersen was not the only one involved, it accounted for a disproportionate number of these companies, including Global Crossing, Waste Management, Sunbeam, and the Baptist Foundation of North America (the largest non-profit bankruptcy ever—US$570 million in losses).

As result of these and other corporate scandals, there was a worldwide questioning of the integrity of North American capital markets. The WorldCom failure was the most dramatic illustration of this. WorldCom acted as the final straw in prompting the passage of the most drastic legislation affecting the accounting profession since 1933—the Sarbanes-Oxley Act (SOX) in 2002.

Key features of SOX include the following:

Ì Increased oversight of auditors, including audit standard setting by the newly created Public Company Accounting Oversight Board (PCAOB)

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Increased penalties for corporate wrongdoers

Ì More timely and extensive financial disclosures

Ì More timely and extensive disclosure of the way the firm is governed

Ì New options of recourse for aggrieved shareholders, including increased legal liability for auditors

For auditors of public companies, SOX created a five-member Public Company Accounting Oversight Board (PCAOB) with the authority to tighten quality control of audit practices and report on inspections of audit firm practices.

Canadian companies listed on U.S. stock exchanges, as well as their auditors, are subject to these SOX rules. SOX and the financial disasters that preceded it have had a huge impact on corporate governance and the regulation of accounting and auditing around the world. For example, in Canada, a predecessor of CPA Canada, the Canadian Institute of Chartered Accountants (CICA), helped organize the creation of its own Canadian Public Accountability Board (CPAB) to oversee the auditors of public companies. The CPAB also tightened quality control of audit practice and reports on inspections of audit firm practices. In addition, several of Canada’s largest pension and mutual funds banded together in 2002 to form the Canadian Coali-tion for Good Governance. This organizaCoali-tion controls hundreds of billions of dollars in assets and monitors executives, audit committees, auditors, and boards of directors in corporate Canada for compliance with what they consider good corporate governance and financial reporting practices. Finally, CPA education and prac-tice are monitored by outside agencies in some provinces. For example, the Public Accountants Council (PAC) was created in 2006, and it determined that only licensed CPAs would be allowed to practise public accounting

Public Company Accounting Oversight Board (PCAOB):

a five-member board created through the Sarbanes-Oxley Act (SOX) to oversee the auditors of public companies in the United States

Canadian Public Accountability Board (CPAB):

the board organized to monitor the auditors of public companies in Canada Canadian Coalition for Good Governance:

a group of the largest pension and mutual funds, whose purpose is to monitor executives and boards of directors to see whether they comply with good corporate governance and financial reporting practices

in Ontario. See pacont.org for PAC’s standards, regulations, and handbook regarding education and licensing of CPAs in Ontario. A similar system exists in Quebec.

Despite these changes, the accounting profession in Canada is still largely self-regulating. For example, CPAB does not create audit standards. CPAB’s monitoring of auditors is described in more detail in Appendix 2B.

The corporate failures, the fall of Arthur Andersen, and the resulting passage of SOX dramatically changed the corporate environment not only in the United States but also in Canada and the rest of the world. CPAB’s and PCAOB’s activities reflect the increased regulation of the profession. The Canadian, U.S., and other accountabil-ity boards around the world will likely make increased second-guessing of professional judgment a fixture of the post-Enron world. That world is now more complicated for auditors and the profession, and the implications will become clearer over time. However, auditing will likely become more important to accounting firms and to society. The use of more ethical reasoning in reporting will also likely be the result of this increased importance.

Specific effects evident through 2015 are included in this text.

The increasing importance of auditing has come at a price; the extensive impact on the markets of the profes-sion’s perceived failures means it is no longer acceptable to leave monitoring of the profession to the professionals themselves. The monitoring process now involves groups representing the broader public interest as well as gov-ernment, but the exact mix of monitors depends on the country. Since most of the corporate failures prompting the changes took place in the United States, the PCAOB has so far led the way in promoting new ways of provid-ing oversight of auditors, and the main instrument of change has been the powers delegated to PCAOB by SOX.

SOX’s impact on auditors can be seen throughout the world, but it also had consequences for broader areas of corporate activities. Following is a quick overview of its main impact on auditors:

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Management certification of all its publicly issued financial statements

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Evaluation of internal control in statements made by management

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Closer regulation of the profession, including regular monitoring of its activities

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Greater responsibilities assigned to client audit committees

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Increased importance of the role of the internal auditor

Internal control statements deal with the reliability of the system or process that creates the financial statements.¹

Audit committees monitor management’s financial reporting responsibilities, including meeting with the external auditors and dealing with various audit and accounting matters that may arise during an audit. In Canada, we have weaker and less costly requirements regarding disclosures, which some have dubbed SOX North. Under SOX North, client firms disclose as part of management discussion and analysis (MD&A) only any weaknesses in the design of internal control systems. There is no requirement that the internal controls be tested for effectiveness. There is also no requirement that these disclosures be certified by management, or that the disclosures be audited. Nevertheless, there is some evidence that these less-costly, self-reported disclosures are credible in capital markets.² We will discuss audit committees and the evolving concept of internal control in much greater detail throughout the rest of this text.

Perhaps the most important result of SOX for the auditor has been the increased monitoring of the profession, in the form of accountability boards. The board in Canada has authority and responsibilities that are different from those of its U.S. counterpart, as the legal systems and political institutions of the two countries are different.

internal control:

the system of policies and procedures needed to maintain adherence to a company’s objectives; especially, the accuracy of recordkeeping and safeguarding of assets

audit committees:

groups that monitor management’s financial reporting responsibilities, including meeting with the external auditors and deal-ing with various audit and accountdeal-ing matters that may arise