Accountants and Accountability

As a former chairman of the board of partners of Andersen Worldwide and as one who spent 37 years in the accounting profession, I take issue with Arthur Levitt Jr.'s comments as reported in ''Accounting Wars'' (Cover Story, Sept. 25). In my experience, Levitt's remarks about the profession's being oblivious to public interest, independence, and full disclosure are off-base. Almost from the day I began with Arthur Andersen and throughout my career, the responsibilities of practicing professionals were constantly emphasized and reinforced in training, in practice, and in guiding the difficult decisions that auditors are constantly faced with.

I concede that public perception seems more important to Levitt than it does to the profession. But, as the senior official charged with smooth functioning of capital markets and securities, Levitt should be more concerned with facts rather than perceptions.

Terry L. Lengfelder
Seattle

I have read countless articles about highly publicized audit failures. As a CPA in the audit practice of a Big Five firm, I am ashamed by the failures of my colleagues in these cases. But as I read your article, I hit my limit with the sweeping generalizations that characterize my industry as immoral, careless, and motivated by greed.

I have worked in auditing for seven years, and I have found the people to be of the highest character. If the leaders of this industry ''had to be dragged, cajoled, pulled, and even pushed'' to make Chairman Levitt's proposed changes, it is because they know the proposal to split consulting practices from audit practices does not address the causes of audit failures.

By Securities & Exchange Commissioner Isaac C. Hunt Jr.'s own admission, they haven't been able to link audit ineffectiveness to auditors' relationships with consultants in real-world cases. Industry studies haven't found a link, either. When the SEC started calling for more active audit committees, the industry agreed. Why? Because our leaders believed that this would improve the quality of our audits.

To understand why audits fail, take a quick read of the latest accounting rules auditors are asked to apply. Has anyone read the new derivatives literature (Statement of Financial Accounting Standards 133)? We have people who spend their entire careers trying to untangle that mess. Is it any surprise that there are inconsistencies in application? Not to mention that the volume of standards we expect accountants to be experts in has doubled since I graduated from college. Almost all of the highly publicized failures dealt in one way or another with emerging accounting issues. Clarification and simplification of the rules would go a long way in improving the quality of financial information.

Nicole Haims
Audit Senior Manager
Deloitte & Touche LLP
Stamford, Conn.

It is critical for accounting firms to recognize that public perceptions of auditor independence are enormously important. The accounting firms' credibility in the eyes of investors is their primary asset. When investors perceive, rightly or wrongly, that an auditor's independence is impaired, then the value of the audit is diminished.

What does the word ''independent'' mean? To the layperson, it conveys the Consumer Reports standard of independence: absolutely no financial relationship with anyone whose products are tested. The public accounting firms do not and have never met this standard of independence, because the audit client pays the auditor. Providing consulting services moves accounting firms even farther from the Consumer Reports standard.

Maybe it's time to drop the word and call the accounting firms ''professional auditors'' rather than ''independent auditors.'' From a public-perception standpoint, it may be better to use terminology that more accurately describes the auditor-client relationship.

Dana R. Hermanson
Corporate Governance Center
Kennesaw State University
Kennesaw, Ga.

You focus on the problem of auditors not being critical of companies that pay them consulting fees. But the other side of the coin relates to the objectivity and independence of the audit firm's consultants.

These professionals can feel pressured by audit partners to make sure that their consulting in no way suggests to the client that there are any problems with the audit work. Thus, consultants in audit firms might have built-in perverse incentives that they would not have if they were working independently.

Of course, conflicts of interest within accounting firms are detrimental to the investors of the companies they audit. A big chunk of the problem can be solved by the judicious action of company board members.

The board of directors should strictly enforce the policy that the outside accounting firm is beholden directly and exclusively to the board--not management. Furthermore, once an accounting firm is hired to do the audit, that firm should be off limits for any other type of work.

Barry A. Liebling
New York

The story of Levitt's fight to force upon the accounting industry a standard of ethics it should have adopted on its own long ago is heartening. The battle against the SEC's proposed new rules prohibiting a corporation's auditing firm from accepting consulting work is evidence of just how lucrative this practice has become.

The Big Five's objections to the separation of the functions, auditing and consulting, are specious on their face. The notion that these firms, whose partners earn in excess of $500,000 per year, will have trouble recruiting new talent if the new rules are implemented is laughable. I am certain that, come what may, there will still be enough cash to draw the next generation of CPAs into the fold.

The work for consulting practices will not go away if it becomes off limits to a corporation's auditors. It will just go to another firm. What the Big Five are resisting is not the loss of the business so much as it is the loss of their inside track to secure these lucrative assignments.

The investing public stands to gain a system of audits that we can have more faith in. If an accounting firm is paid millions to plan a client corporation's strategy for e-commerce, for example, and then must assemble the reports to shareholders and financial markets measuring its success, how much faith could we possibly have in those reports? Oh, professor, may I grade my own term paper?

Peter M. Lerman
Bethel, Conn.

En Pointe Is on a Solid Footing

Numbers can mislead, and such is the case with the information in ''Critical numbers of the month'' (e.biz, Sept. 18). To characterize En Pointe Technologies, a reseller of enterprise software and hardware products and provider of technology services, as a company near insolvency is outrageous and shows a void of rudimentary financial analysis.

There has been much comment in the press about of the post-IPO dot-com cash burn, but this does not apply to En Pointe. We are an established brick-and-mortar corporation with a solid balance sheet and a long history of electronic commerce in the delivery of technology products and services. Our restructuring efforts of late are a reflection of our desire to increase profitability, not conserve cash.

Founded seven years ago, our company went public in 1996, with the proceeds used to pay down debt. We are not and never have been close to running out of cash.

We have operated on a cash-positive position in every quarter since going public. Our low end-of-quarter cash position is the nature of our business, in which a line of credit is used on an ''as needed basis.'' An analysis of SEC documents would have clarified that.

Mike Shabazian
President and CEO
En Pointe Technologies Inc.
El Segundo, Calif.

Part-Time Work: Good for Moms, Good for Employers

Achieving balance is a life goal for most employees, especially women with children (''The new debate over working moms,'' Working Life, Sept. 18). During my 17 years of working--the final 14 of them with children--I have worked full-time, consulted, and worked part-time. The only solution that has allowed true balance is part-time work.

For six years, I have worked three to four days a week, currently as a director of new-products marketing at Pillsbury Co. What do I get from this arrangement? The ability to apply my experience to create new businesses and still have time to volunteer and spend time with my family. What does Pillsbury get? The contributions of an experienced expert and 100% of my brainpower at 60% to 80% of full-time pay.

More broadly, the company gets dedicated, productive employees. None of our many part-time marketers has voluntarily quit, and most are in roles that were previously filled by less-experienced full-timers. Part-time professional work is a win-win solution that enlightened companies pursue.

Michele McKeown
Bloomington, Minn.

As a full-time working mom with two super kids, I have sorted through all the emotions and issues surrounding the fact that both my husband and I work, knowing that the choices we are making are best for our family. Our situation is not the best for everyone--just us. We need to support all families with one or more working parents and to figure out how to raise the best kids in today's environment--not pass judgment on whose way is right or wrong.

Diana Chrissis
Arlington Heights, Ill.

The most important issue for parents is not the social environment of the workplace but the insecurity of parents as a result of criticism. Parents allow themselves to fall victim to, and then contribute to, criticism of other parents.

American society perpetuates public judgment of parents on nearly every aspect of child rearing. How many new parents run out and buy parenting books as soon as they know of their pregnancy? How many of them follow these books like an owner's manual? And how many of them later consider themselves pros and judge other parents? What parents need more than a changed workplace, although that is of high priority, is self-confidence in their own child-rearing decisions.

Jennifer Cowger Ehara
Fishers, Ind.

So Who's Afraid of Lesbian Parents?

''Did Hancock go a mom too far?'' (Up Front, Sept. 25) made me go ballistic. My wife and I adopted a Chinese daughter less than a year ago. My wife and sister traveled to China to receive her. Would people see them as lesbians? Just because two women are together doesn't make them lesbians.

I applaud John Hancock Mutual Life Insurance Co. for not pulling the ad. I also applaud the depiction of adoption on television; it is time to show that adoption is not a last resort to have a child but a natural way to increase the size of your household. Besides, gay parents couldn't be worse than some of the heterosexual parents we hear about.

Patrick Kelley
Cincinnati

Schools' Needs Don't Stop at High Tech

You suggest that computer technology can have a productivity impact on the schools like the one it had on business (''Wired schools,'' Special Report, Sept. 25). But the business productivity revolution was not accomplished by technology alone. Equally important have been the removal of ineffective managements, the reorganization of work processes, and a generally more innovative and less bureaucratic corporate climate. All of these changes have been brought about by increased competition, both in the capital markets and in the markets for goods and services.

Without competition, the educational establishment is no more likely to reform itself from the inside than was a badly managed 1970s corporation. Many politicians are beholden to this establishment and are focusing on technology and funding alone, rather than facing up to the need for structural reform.

David F. Foster
Potomac, Md.

The Lure of Socially Responsible Investing

We are twin sisters, studying business at California State University at San Marcos. We found ''Readin', writin', and stockpickin''' (BusinessWeek Investor, Sept. 25) stimulating.

One element was missing, however: Kids our age feel strongly about responsible investing, which means investing in companies such as USA Biomass Corp. that are involved in the transport and recycling of green waste. Such companies are bound to flourish, thanks to laws that mandate that municipalities recycle--i.e., divert 50% of the waste stream from the landfills.

Sophie and Carine Genicot
Oceanside, Calif.

''Why B2B is a scary place to be'' (News: Analysis & Commentary, Sept. 11, 2000)

''Why B2B is a scary place to be'' (News: Analysis & Commentary, Sept. 11) contained an illustration with generic names, such as Acme Parts and Gizmo.com. These references were not intended to refer to any specific companies. Nor should they be read that way.