Integrity of Accountants

In the article, ‘Lawyers and Accountants Once Put Integrity First’, Mark W. Everson discusses how the accounting and law practices have become more of a profit oriented business in recent years. Fifty years ago these industries were thought of as pillars of the financial system. They were trusted by society to uphold the federal guidelines and to protect the country from corporations taking part in unreasonably highly risky business practices. Mark W. Everson states, “But over time, attorneys and auditors came to see their practices not as independent firms that strengthen the integrity of capitalism, but as businesses measured chiefly by the earnings of their partners.” What he means by this is these attorneys and auditors are more worried about the profits they put in their pockets than the integrity of their industry.

One of the biggest fields that this is shown in is the field of tax law. In tax law there is so much gray area and room for interpretation of the laws that companies must pay tax professionals a very handsome sum of money to navigate this tricky field. These tax professionals must examine every aspect of the corporation to insure that all forms of income have been accounted for and properly recorded on the correct tax form. They are also responsible for finding every little tax write-off possible. Some of these tax write offs can be questionable and not straight forward to an individual without the proper training. Corporations are willing to pay this due to the fact that even with these high fees paid to accountants it will save them money in the long run by minimizing tax obligations. These corporations must put their faith in these accountants because even if it is an independent accounting firm that prepares a corporation’s tax return it is still the corporation that will be responsible for any penalties or fees imposed upon them by the Internal Revenue Service. These penalties and fees can be rather hefty in certain circumstances.

That is why most major corporations only trust their accounting needs to one of the Big Four accounting firms. Even this does not guarantee that things will be done correctly. This was demonstrated with great emphasis in the case of Enron. In this case Arthur Anderson, one of the five biggest accounting firms in the world, at the time, was responsible for the auditing of Enron. Even with Arthur Anderson’s great reputation and world class accountants they were unable to foresee the catastrophic collapse of Enron. I believe this is due to the fact that Arthur Anderson was more concerned about satisfying a multi-million dollar account than it was concerned with upholding its industries integrity standards. Arthur Anderson seemed to be so worried about losing this account so they overlooked vital details in the financial reports that should have indicated the serious problems that Enron was facing. This concern with stuffing their pockets just a little bit fuller eventually caused them to lose everything. Since the collapse of Enron Arthur Anderson has completely dissolved and any individual involved with the company at the time of the Enron scandal has lost all of the industries respect. Integrity is a vital part of the accounting industry because without it no one will trust your work.

Everson, Mark. "Lawyers and Accountants Once Put Integrity First." New York Times 06 18 2011. n. pag. Web. 31 Oct. 2011. <http://www.nytimes.com/2011/06/19/opinion/19everson.html?ref=accountingandaccountants>.

Why CFO's are Important

Darren Dahl, a writer for the New York Times presents a strong argument for hiring a Chief Financial Officer in corporate business. In his article he describes three scenerios that involve hiring a chief financial officer. The first involves a software company that sells applications for mobile devices that allow users to create and edit documents. This company is called Quickoffice. Quickoffice’s co-creator, Alan Masarek, was performing multiple duties as the chief executive officer and the chief financial officer. In 2010, Mr. Masarek decided it would be in the best interest of his company to hire a chief financial officer.  “It depends on how dynamic the business is. I needed to hire someone who could function as my business partner and allow me to step away from the books so I could manage other aspects of the business better.,” said Mr. Masarek.

                The second scenario is of a company called Parties That Cook. Parties That Cook is a company that holds parties and corporate team building events where the participants actually get hands on cooking lessons. In this case, the company is not large enough to justify a six figure salary for a chief financial officer so they elected to hire a part time chief financial officer. They hired Jeff Gustafson as a part time chief financial officer for $150 an hour for eight hours per month. In this limited time he works on several small projects to benefit the company’s financial situation.

                The third scenario is of VirtuOz, which is an online marketing, sales and support company. Their need for a chief financial officer comes from the fact that they are planning on becoming a publically held company. Publically held companies are held to a much higher standard than privately held companies are. This is why VirtuOz needed to hire a chief financial officer.

                These three scenarios show that there are many different reasons that a company can be in need of a chief financial officer. At a small start off company a chief financial officers are usually unnecessary. When a company is first starting up they normally just hire an outside accounting firm to do their finances and keep an accountant on hand to handle taxes and payroll. As a company’s financial reporting becomes more complex and more vital to their success it becomes time to consider hiring a chief financial officer. There are some basic guidelines that a company can follow to determine if they need to hire a chief financial officer. These guidelines are normally monetary in nature.  “Typically, however, hiring one does not become essential until companies reach a tipping point — often $10 million to $20 million in revenue.,” according to Mr. Masarek. Before this point there is always the option of hiring a part time chief financial officer such as Parties That Cook did. The biggest factor that keeps a company from hiring a full time chief financial officer is the fact that they typically make over one hundred thousand dollars per year. For a newly formed company this is a tremendous expense. Even with the high cost of a chief financial officer, it is unwise for a company to try to navigate these difficult economic times without the expert guidance of the chief financial officer.

                Dahl, Darren. "When Should a Small Business Hire a Finance Chief?." New York Times 10 26 2011. n. pag. Web. 31 Oct. 2011. <http://www.nytimes.com/2011/10/27/business/smallbusiness/when-should-a-small-business-hire-a-chief-financial-officer.html?ref=accountingandaccountants>.

accounting fraud

Accountants are trusted to keep accurate records of assets. It is the main purpose of an accountant’s job. Recently, it has come to light that the unit of the United States Marshals Service that has been trusted with the assignment of keeping records of assets ceased in criminal cases has failed. In eight out of fifty five cases it handled, the records were so shoddy that the purchase price and the buyer were both unknown. This negligence was caught by an audit of the unit of the United States Marshals Service.

This audit determined that there were many problems in the way that this unit was run. They had inefficient methods of track, value, safeguard and dispose of complicated and valuable assets. They were also supposed to be a team that would oversee the unit that was handling the assets and this team didn’t properly do their job. The biggest injustice in this whole thing is that they lost millions of dollars in restitution for crime victims by undervaluing the assets.

Every accountant has a responsibility to the public to be honest and to fulfill their job to the best of their ability. This means to follow the guidelines that have been set for their specific job. In the case of the United States Marshals Service this responsibility was not fulfilled. It could be that they did not know what they were doing or that they were just lazy and did not want to do the work, or that they were committing fraud. I do not feel like they could have ever gotten to that level in the government if they were ignorant, so them not knowing what they were doing is very unlikely. It is very possible that they were just being lazy and did not want to do the work. I feel like this is also very unlikely because of the way the government audits everything. They would have known that someone would have caught them and the risk would not have been worth the reward. In my opinion, fraud is the most likely cause for this series of events. Fraud is when a person intentionally deceives or misuses their place of power for personal gain.

There are three main factors that will cause a person to commit fraud. They are motivation, opportunity and risk verses reward. They obviously had the opportunity working with millions of dollars in ceased assets. They would have known the risk of getting caught but with the reward being anywhere from 1 million to 49 million dollars it could have been worth it to them. As for the motivation, that could have been a number of things. It could have been that they are just greedy or that they were being pressured into it by their peers. That part of it is unclear but I truly do believe that this was a fraud to put millions of dollars in the pockets of the team that was responsible for overseeing the assets. Fraud is the biggest monetary crime that can be committed and is the biggest problem in the accounting industry. It has caused multi-billion dollar companies to crumble. 

Rashbaum, William K. "Auditors Find Chaos in U.S. Marshal’s Asset Sales Record-Keeping." New York Times 13 09 2011. n. pag. Web. 13 Oct. 2011. <http://www.nytimes.com/2011/09/14/nyregion/auditors-find-chaos-in-us-marshals-asset-sales-record-keeping.html?_r=1&ref=accountingandaccountants>.