The collapse of financial institutions resulted from business and regulatory failures - not audit failures. An audit in and of itself cannot predict economic events or prevent mismanagement, misappropriation of funds . . . or fraud.
The editorial titled "Stiffen rules for accountants," which appeared in the Deseret News Nov. 25, appears to make a quick judgment without knowledge or consideration of the facts.It is wholly inappropriate to blame the accounting profession for the collapse of a troubled savings and loan industry artificially bolstered by government policies.
The editorial implies that settling claims is an admission of guilt when, in fact, the message that should be heard loud and clear is that our tort liability system is out of control.
Innocent defendants are being forced to settle claims in order to avoid the exorbitant costs of seeking justice through the existing legal system. The settlement referred to in the editorial covered actions that would have taken years to litigate at tremendous cost.
The accounting profession did not cause the failure of the savings and loan and should not bear responsibility for the financial collapse that occurred during the '80s.
It is well-known and widely documented that the crisis was caused primarily by a nationwide collapse of real estate values, tax reform, deregulation and ineffective regulatory oversight.
For example, Congress took away tax incentives in 1986, which significantly eroded the value of real estate. Congress changed the fundamental rules of banking through deregulation, which exposed financial institutions to significant interest-rate risk.
Many financial institutions were fatally affected by these changes. Congress now expects the accounting profession to cover the losses that resulted from these Congressional actions.
The collapse of financial institutions resulted from business and regulatory failures - not audit failures. An audit in and of itself cannot predict economic events or prevent mismanagement, misappropriation of funds or financial fraud.
The primary purpose of an audit is to provide independent verification that proper and correct accounting practices have been followed. It should also be noted that government regulators and bank examiners were auditing these financial institutions as well.
The regulators and examiners decide if and when a financial institution is out of business, not the independent auditors.
Investment involves risk. In our litigious society, the American public, and even the government, have come to believe that any loss has to be compensated and that blame should be placed on someone else.
The United States is the only country in the world laboring under this mind-set.
The huge settlements and judgments against accountants represent a miscarriage of justice explainable only by the fact that accountants are viewed as "deep pockets."
There is a great need for liability reform to prevent the abuse inherent in the existing legal system. The current litigious attack on the accounting profession is, in fact, an attack on the very structure of our economy that will have egregious effects on everyone.
It is estimated that litigation abuse costs the U.S. economy between $100 billion and $300 billion annually.
CPAs place great value on their Code of Professional Conduct, which requires independence, technical competence, integrity and objectivity. The vast majority of work carried out by public accounting firms is of the highest quality.
In fact, less than one-third of 1 percent of the audits of all publicly traded companies are even alleged to be substandard.
The accounting profession is not responsible for the collapse of the savings and loan industry. The causes were economic and regulatory.
The large settlement referred to in the editorial is symptomatic of a tort liability system that is out of control. Stiffening the rules for accountants will not solve the problem.