Why The Auditors Need Auditing

The accounting profession appears to be losing its grip. In January, the Securities & Exchange Commission reported that many partners at PricewaterhouseCoopers violated its rules by owning investments in companies audited by their firm. But the accounting profession is withdrawing funding from its own watchdog organization, the Public Oversight Board (POB), to prevent it from reviewing possible conflicts of interest at other Big Five firms. Accountants have a duty to provide clean, transparent, and honest numbers on corporations--an impossible task if they own stock in the companies whose books they are supposed to independently oversee. If they can't or won't do their duty, the auditors open the door for government regulation.

Just what are the accountants trying to hide? The POB was set up by the firms more than 20 years ago to improve the self-regulation of the profession in the aftermath of the major accounting scandal surrounding the collapse of the Penn Central Railroad. It has always relied on the industry's professional organization, the American Institute of Certified Public Accountants, for funding. In the wake of the SEC findings about Pricewaterhouse, the POB set about reviewing possible conflicts of interest at the other big accounting firms to ensure the independence of their audits. But the AICPA is refusing to finance this initiative, the first time it has said no to any POB activity. The question is why. Odds are that Pricewaterhouse is not alone in having some of its partners invest in companies they are auditing--and the accounting profession doesn't want this known. To their credit, Ernst & Young and Pricewaterhouse have protested the AICPA move.