Ever heard about Arthur Anderson Accounting? The story of Arthur Anderson is quite ironic, as the founder was a believer in high ethical standards. He, however, passed away in 1947. After auditing Enron, Arthur Anderson collapsed as a company in 2002. The company had 85000 employees worldwide.
The big question is, are the Enron and Arthur Anderson scandals isolated events, or are they typical to the industry? I’d say the latter, and what we’ve seen so far is only the tip of the iceberg. Many accountants have become cover-up specialists and agents of negligent or willfull fraud.
The system is broken because companies pay an accounting firm of their choice to certify their statements. Would you trust someone who is paid by me, to tell you the truth about me? Didn’t think so. But if you’re to trust any public company’s earnings report or financial statement, that’s exactly what’s happening. Accounting students learn that “conflict of interest” is a bad thing during their education, yet their entire industry is based upon it!
What should be done about this atrocity? The companies should pay an accounting tax, which the government should use to pay accountants to verify company book-keeping. A random firm is picked to audit every company. The company cannot choose to ignore the audit results and pick another auditor. No more conflict of interest by design. The fraud must end.
Until such a system is implemented, I hereby add The Accounting Industry to the glorious list of maphackers. Reason: It is based on a system that introduces conflict of interest by design, even though a three-liner fix is available. Failure to embrace such an improvement can only be attributed to maphacker attitude.
A note to investors: Protect your money. Don’t trust statements, even though they are endorsed by reputable accounting companies. Arthur Anderson was once reputable too… Think for yourself! There’s a lot of over-stated earnings and mark-to-model assets out there, and those that are supposed to be watchdogs have joined the maphackers. Nevertheless, companies based on hot air and creative accounting will eventually fail.