Financial Privacy & Security News

"Accountants are supposed to be the public's watchdogs, but who is watching the watchdogs? They're watching themselves," said Ed Mierzwinski, U.S. PIRG Consumer Program Director "That's a recipe that makes it too easy for companies like Enron and WorldCom to cook the books."

"In the wake of the collapse of Enron, a company built largely on sham accounting gimmicks approved by its auditors at Arthur Andersen, state governments should take action to guarantee that their supervision of accountants is controlled by independent officials, not by other accountants," said Mierzwinski.

State Accountancy Boards are state agencies with the power to certify public accountants and take disciplinary action against them. While the federal Securities and Exchange Commission (SEC) can ban an accountant from auditing SEC-registered, publicly traded companies, only a State Board of Accountancy can grant or remove an accountant's license, added Mierzwinski.

Among the key findings of Who's Watching the Watchdogs, a survey of state accountancy board membership in 50 states and the District of Columbia, were the following:

• Nationally, 80 percent of board members were accountants and only 20 percent were public members.

• Nationally, of the 51 state boards, 46 (90 percent) have boards in which at least half of the members are known to be affiliated with accounting firms.

• There are 15 states where 75 percent or more of the board are members of the accounting industry and nine states where there is not a single public or consumer member on the board.
  

• Four states (Louisiana, Mississippi, Nevada, and North Dakota) have no statutory positions for public members on their boards. Only three states (California, Connecticut and New Mexico) provide that a significant minority (greater than 40 percent) of their boards be public non-accountant members. All states provide for a majority of accountant members.
  

• Only 10 of 51 (19 percent) state board Web sites disclosed any accountant disciplinary information on their Web sites, making it difficult for consumers and investors to determine whether a firm or accountant had been disciplined.

• Require that a majority of accountancy board members be non-accountants and fully independent from the accounting industry, selected to represent consumers and investors.

• Fund the accountancy board adequately to ensure that its professional staff can conduct investigations of misconduct by accountants.
  

• Require the board to inform the public on its website of all disciplinary actions taken against accountants and accounting firms.