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The Mass Media

The Mass Media

The Mass Media

Business Schools Learn Important Lessons

Rutgers Business School is adding a new accounting course to the curriculum, with the jazzy title “Cooking the Books.” Students won’t learn how to falsify financial statements, of course, but how to recognize finagling when they see it.

“We’re basically going over recent accounting scandals-Enron, Krispy Kreme, Global Crossing-and showing them what happened, why it happened,” said Dan Palmon, head of the Rutgers accounting department. “We’ll teach them how to spot fraud.”

The curriculum change is just a small piece of how recent corporate scandals are affecting the accounting industry. With its once-strong reputation for integrity weakened, the industry also now faces the strong possibility that the federal government will be looking over accountants’ shoulders when accountants look over the books at large corporations.

“I think the accounting profession needs to be shaken up so that investors can have confidence in financial statements,” said Newark lawyer John J. Fahy, a former Bergen County prosecutor who is also a certified public accountant and former federal prosecutor specializing in white-collar crime. The accounting scandals at Enron Corp., WorldCom Inc., and other corporations have wiped out billions in investors’ wealth and tens of thousands of jobs.

Accountants are in the spotlight largely because of the legal troubles of Arthur Andersen, one of the industry’s Big Five firms.

Andersen was convicted of obstruction of justice in connection with its audit work at Enron, the failed Houston energy company that used unconventional _ some say misleading-accounting methods.

Andersen expects to end its audit practice by Aug. 31, and is now helping clients transfer to other accounting firms. Thousands of Andersen’s 26,000 employees have moved to other accounting firms or been laid off. As a result, accountants’ public image-which used to be “dull but honest”-has suffered. A Gallup poll in February 2002 asked people to rate the honesty and ethical standards of six professions. Only 32 percent of respondents ranked accountants “high” or “very high”-down from 41 percent a year earlier.

That rankles accountants.

“I taught accounting for eight years. I didn’t teach anybody how to shred papers,” said Howard Bookbinder, an accountant in Fair Lawn, N.J.

“I went into this profession because I had independence, objectivity, and integrity. … I don’t like it when people poke fun at my profession.”

In response to the scandals, several of the Big Five firms have put forth proposals for cleaning up corporate accounting. The head of PriceWaterhouseCoopers, for example, has called for global accounting standards and fuller disclosure by corporations.

Whatever caused accountants to miss the funny numbers at Enron, Xerox, and WorldCom, among others, many observers are staggered by the size of the misstatements.

“You could play games up to 5 percent with any numbers; after that other numbers would be out of whack,” Fahy said of corporate accounting. Looking at Xerox, which restated $6.4 billion in revenue, and WorldCom, which restated $3.8 billion in expenses, he added: “When the numbers get as big as this, accountants had to know. If they didn’t, they were incompetent.”

Still, he and other analysts say accountants shouldn’t be the only watchdogs of corporate honesty.

Professors recommend that corporate boards of directors have many more members who don’t work for the corporation _ and in particular, more representatives of shareholders’ interests.

“Representatives of big pension funds (that invest in the corporation) should have several seats on the board,” said Sudit.

“Large institutional investors, such as pension funds, have a major role to play in making the system work,” agreed Dean David Steele of Fairleigh Dickinson University’s Silberman College of Business. Steele, a former executive at Chevron, also said the Securities and Exchange Commission should have the same enforcement powers as the Internal Revenue Service.

The corporate accounting controversy comes at a time when the AICPA is trying to recruit more young people into the industry. The AICPA found that from 1990 to 2000, the percentage of college students majoring in accounting dropped from 4 percent to 2 percent.

Accounting schools, however, report a recent uptick in interest. At Rutgers, for example, the master’s program in professional accounting just admitted its largest class in more than a decade-58 students, up from 40 last year.

Apparently, students who would otherwise have sought Wall Street careers are looking for a profession with more reliable job prospects.

“Now that half of Wall Street has collapsed, they want a real job,” said Frank Aquilino, head of the accounting department at Montclair State University.

(c) 2002, The Record (Bergen County, N.J.)

Distributed by Knight Ridder/Tribune Information Services.