A Laser-Beam on Accountancy and Beyond

In the preface to my new book Towards a Non-Autistic Economy � A Place at the Table for Society, I observed that the World Trade Center was not the first diabolically plotted catastrophe to hit Lower Manhattan. Previous months had witnessed the implosion of an incredibly rigged stock market which had been passed off as the economy. �Everything we had learned about keeping the market system from falling apart in chaos had been buried. The universities, the media, textbooks had been purged of references to the great debates of the thirties. For infernal cunning and the number of its victims, Manhattan #1 and the destruction of meaningful economic thinking took no backseat to the crime of the Twin Towers.�

A declaration of war against an enemy of no known address was Washington�s response to Manhattan #2. �War,� however, provides a better setting for cover-up than for analysis. And as the progress on the Grand Alliance against Terror proceeds, the whole underlying problem is getting dreadfully out of focus. Moreover, the factors contributing to Manhattan #1 and #2 intertwine. The stench of oil, the throttling of society by debt, a circus of accountancy acrobatics compound the confusion.

Yet, a forward step of some significance is being made. From the profiteers at the head of the growing number of bankrupt transna�tionals, attention has shifted to the accountants who approved and even helped design the strategy of much malfeasance. Even a touch of philosophical reflection on the origins and nature of accountancy has begun turning up (The Wall Street Journal, 14/03/02, �Depreciated � Did You hear the One about the Accountant? How a Decade of Greed Undid the Proud Respectability of a very Old Profession� by Ianthe Jeanne Dugan). The report reaches back to Sum�eria, Florence and Goethe for a sense of the fall of that once awesome profession.

However, only when we are offered similar reflections on economic theory will the Enron scandal be seriously addressed.

But back to the WSJ and Enron�s accountants.

�During 25 years at Ernst & Young�s office in Buffalo, auditor C. Anthony Rider put his imprimatur on thousands of pristine financial statements. But that wasn�t enough.

�A few years ago, Mr. Rider says, E&Y set a quota for him: $3 million more a year in revenue from clients whose books he policed. He joined more than 2,000 fellow partners in rigorous training on how to sell consulting services on law, insurance, partnerships � �anything under the sun,� the 50-year-old accountant says.

��It was like telling a reporter to sell subscriptions,� he says, �I couldn�t do it, if I knew my clients didn�t really need it.�

�In 1999, his $300,000 salary was cut 10%. Then in early 2000 Mr. Rider was fired.

�E&Y won�t comment on Mr. Rider�s case. �Our partners� compensation is based on how well the firm does in any given year and how well the partners serve their individual clients within specialty areas,� says spokesman Les Zuke.�

From Watchdogs to Lapdogs

�Mr. Rider�s experience is essential to understanding how accountants �morphed from �watchdogs to lapdogs,� as the evolution was described during recent congressional hearings. [So many things in the world have changed beyond recognition in recent years, that the term �morph� has been coined to cope with them.] Yesterday Arthur Andersen was bracing for the government to file criminal obstruction charges against it as potential suitors� interests in a merger waned.

�Long before AA�s document-shredding hogged the headlines, accountants, the pinstriped paragons of rectitude, found themselves under pressure from many directions to alter their centuries-old practices. Over the past two decades, innovations in computer technology rendered obsolete many of the old-fashioned auditors� functions, prodding accountants to find other ways to bring in revenue. Companies� desire to produce ever rosier results for an ever-larger and savvier shareholding public compelled accountants to find ways to put the best possible spin on clients� financial reports.

�And there was simple greed. In the eighties the savings-and-loan crisis raised questions about how accountants could have let things get so bad.�

Salivating over their Clients��Books

The sagging morality of the accounting profession derived from what was happening to those of their clients who were becoming the �dominant revenue� in society. The �dominant revenue� is a concept of the late French economist Fran�ois Perroux, referring to the power position of a class whose prosperity is identified with the well-being of society as a whole. Once such a view takes hold, anything that contributes to the established system is regarded acceptable. And accountants found it harder to avoid salivating as they did the books of the stocks and bonds trade. That proved to the chosen that eventually the overbrimming bonanza would reach even the impoverished of the world and thus assure the compliant a reward in heaven as well. It is difficult to resist such officially approved certainties. There is even dwindling reason for trying to do so.

�The Big Five accounting firms � Price�waterhouseCoopers, Deloitte & Touche, Ernest & Young, AA and KPMG � collectively doubled their revenue in less than a decade to $26.1 billion last year. But most of that increase went to consultants and hard-sell accountants, not to the likes of Mr. Rider.

�Now accountants wallow at the bottom of professions in public-opinion polls they topped 20 years ago. The business is drawing fewer top students, more government scrutiny and bad jokes. �We just got a message from Saddam Hussein,� President George W. Bush chortled recently. �The good news is that he�s willing to have his nuclear, biological, and chemical weapons counted. The bad news is he wants Arthur Andersen to do it.�

�Accountancy,� continues the WSJ article, �was formed as a vessel of trust, originating 10,000 years ago with stone counters in Jericho. In ancient Sumerian cities of what is now Iraq, bookkeepers documented wealth by pressing the ends of sticks into damp clay tablets that hardened into permanent clay records.

��What would Lucas Pacioli think?� asks Larry Crumbley, an accounting professor at Louisiana State University in Baton Rouge. Mr. Crumbley is referring to a Franciscan friar considered the father of accounting for his 1494 �Summa de Arithmetica, Geomet�ria, Proportioni et Proportionalita (�Everything about Arithmetic, Geometry and Proportions�). The treatise described double-�entry bookkeeping � for every credit entered into a ledger there must be a debit. That concept was created by Floren�tine merchants and hailed by Goethe as �one of the most beautiful discoveries of the human spirit.��