The Pillars of Accounting
As a CPA and a former member of Congress, I am saddened to see the accounting profession and certain members of the House, by their recent actions, refusing to put the public interest first. If SEC Chairman Harvey Pitt and William Webster, his choice to head the newly created Public Company Accounting Oversight Board, refuse to step down, they will appear to be facilitating those partisan and vested interests that are working hard to derail the corporate reforms promulgated by the Senate and only reluctantly signed into law by President Bush this summer.
Every good accountant knows by training and instinct what Pitt and Webster will now learn the hard way through public condemnation. They will learn that the credibility of the accounting profession rests equally on four pillars: competence, independence, full disclosure, and sound judgment. As watchdogs for the many shareholders who rely on independently audited financial statements, sound financial advice, and good corporate governance to protect, in many cases, their life's savings, Pitt and Webster must be held to the same high standards that we expect from those they oversee.
Unfortunately, at a time when the confidence and the finances of the investing public have been rocked by corporate scandals, a plummeting stock market, and political gridlock on fiscal policy, the ray of hope recently emanating from Washington for accountability and genuine independent oversight of corporate America and the accounting profession has been dealt a severe blow by Harvey Pitt. How could he not realize that the full and timely disclosure of all relevant information about William Webster's candidacy was imperative for a fair vote by the members of the SEC board? Why did he choose to conceal Webster's role as chairman of the audit committee of a company headed for bankruptcy and potential indictment for fraud? And why did he do this at a time when the pressure from the accounting lobby and the Bush administration to appoint Webster instead of John Biggs, a highly regarded reformer, to head the new accounting oversight board was already well-advertised? Pitt is too smart not to have understood the implications of his choices, and so one must conclude that he acted either out of supreme arrogance or with terribly impaired judgment. No matter what, he is now mortally wounded in the public's eyes, and he should resign.
In the case of William Webster, we must ask two questions. First, was it enough to disclose his questionable Board activities at United Technologies only to Mr. Pitt? I think not. As a seasoned lawyer and political appointee, he should have foreseen the public outcry that this would cause. Second, how can Webster justify firing the independent auditors of United Technologies, for which he served as chairman of the audit committee, when they advised him that they had detected serious weaknesses in management's internal financial controls? Webster should have led the audit committee in protecting the outside accountants, but instead he presided over their demise. He shot the messenger for bringing bad news, when he should have been calling for an immediate Board-sponsored investigation of the allegations. Because of his failure to do so, he should be disqualified from becoming the official we are counting on to protect the people's interest in publicly traded corporations. Whether his actions were the result of incompetence or insensitivity in these matters, as a non-accountant, or the product of woefully bad judgment, Webster must revisit and fully disclose his past activities on corporate boards. In my view, he would be better off stepping down gracefully now, before the emerging political fiasco becomes a full-blown public tragedy.
Both Harvey Pitt and William Webster have a lot to account for. But the public deserves more than just another investigation. The time has come to elect new players to fill the roles of the top watchdogs for the public's huge financial stake in corporate America. The time has come to return to the pillars of accounting and to make the promise of reform a reality.