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Accounting Updates Part 2 Southern Gas Association Accounting & Financial Executives Conference April 28, 2003 Robert E. (Bob) Jensen Trinity University San Antonio, TX 78212 Auditors—the CPAs. - PowerPoint PPT Presentation


  • Accounting Updates Part 2

    Southern Gas AssociationAccounting & Financial Executives Conference

    April 28, 2003

    Robert E. (Bob) JensenTrinity UniversitySan Antonio, TX 78212

  • Auditorsthe CPAsFailed to accept responsibility for fraud detection (SEC, Supreme Court, public expects them to detect fraud) If auditors arent the watchdogs, then who is?Tradition of sending puppies out to yap at the receivablesA few auditors got too close to their clientsAudit became a loss leaderEasier to sell lucrative consulting services from the insideBecame largest consulting firms in the U.S. very quickly (Andersen Consulting grew to compete with AccentureBecame greedy--$500,000 per year per partner compensation wasnt enough; saw everyone else getting rich

  • Annual Salary $ 3 Million $25 million in salary $US29 million in partnership earnings over the next decade. Pension worth $1 million a year for life and had access to a corporate jet owned by Ernst & Young and a New York apartment.$ 24 million to Janet BobrowJan Bobrow, the ex-wife of Ernst & Young CEO Richard Bobrow, says she would have settled their divorce for a little more than $2 million. Richard Bobrow offered $1.2 million. USA Today, October 15, 2002

  • Moral DecayAttendees at the April, 1998 Business Week Forum of Chief Financial Officers revealed:67% of CFOs said they had been asked by senior company executives to misrepresent corporate financial results12% of CFOs admitted they had actually misrepresented financial results55% said they had fought off requests to cook the books

    Honesty studies1961: 12%1986: 31%2002: ???

  • Current Executive Fraud-Related ProblemsMisstating Financial Statements: Quest, Enron, Global Crossing, WorldCom, etc.

    Executive Loans and Corporate Looting: John Rigas (Adelphia), Dennis Kozlowski (Tyco--$170 millionthe $15,000 umbrella stand)IPO Favoritism: Bernie Ebbers ($11 million)CEO Retirement Perks: Delta, PepsiCo, AOL Time Warner, Ford, GE, IBM (Consulting Contracts, Use of Corporate Planes, Executive Apartments with meals, maids, etc.)

  • Current Executive Fraud-Related Problems

    Exorbitant Stock Options Who owns his own 14,000-foot mountain in Colorado?

  • Largest Bankruptcy Filings (1980 to Present)

  • Recent Financial Statement FraudsEnronWorldComAdelphiaGlobal CrossingXeroxQwestMany others

  • Lets Get Back to the Basics

  • Back to the BasicsKnow your audit clientUnderstand the key reports used by management

    Understand the budget process

    Understand the source of growth

    Know your clients industry

  • Professional Skepticism

    Should be displayed by all members of the team throughout the audit and review engagements

  • Back to the BasicsVary the audit testing performed

    Prepare a detailed audit program

    Understand the clients closing process

    Dont forget the general ledger

  • The Closing Process

    Follow-up on all questionable items during the final analytical review

    Examine all consolidating financial statementsIncluding, all post closing and top-side entries

  • Back to the BasicsIssues encountered during the audit ---

    Deal with the issue at hand

    Dont try to paper over the problem

    Management letter comment is not enough

    Dont make the clients problem your own

  • Key Elements of Public TrustSpirit of TransparencyCulture of AccountabilityPeople of Integrity