The new Sarbanes-Oxley Act

Much has been speculated on the future of the accounting profession and the implications the new Sarbanes-Oxley Act. Many propose reformed behaviors on the part of the accounting professions' members as a viable means to comply with the extensive legislative changes set forth upon the profession. The SEC's rush to legislate and regulate the audit function is in reaction to the recent surge in fraudulent financial reporting and the scandals that tried to prevent this behavior from becoming known to the investing public.

These are all merely rash and impudent remedies with no viable long-withstanding solutions. Furthermore, little has been written on potential resolutions and/or the accurate proliferation of this paradox we currently suffer. Proposed solutions come as recommendations to now comply with all regulation imposed upon us, to lay in defeat, and even impose stricter regulation upon ourselves…… and most are not willing to admit that it is the "professions" themselves that are in a life-threatening struggle to remain just that; professions.

The accounting profession is not alone, the law profession is currently experiencing a similar battle, and the medical profession as we knew it is a concept for the history books. The once luminous Enron, in addition to Andersen, WorldCom and Tyco, are the believed perpetrators. Sarbanes Oxley is the governments' response to the humiliation and shame Enron brought about; evermore it is a poignant illustration signaling the need for reform as we enter the next major business movement reflective of our current times, which are dominated by two forces, information and speed.

These scandals have haunted everyone they have touched both personally and sympathetically, yet they also have triumphed; by forcing the accounting community to readdress the issues that are lacking in the "professions". It is this single victory that I am grateful; not only did we survive the initial onslaught and embarrassment, but now the business community is demanding change. This demand has revealed the inevitable: until the accounting community radically separates the audit function from the consulting role, these ills we currently suffer will continue!

We can't change what has already occurred and although some may like to go back to a pre-consulting time, the accounting profession's experience and knowledge is much too valuable to the new economy. No one would benefit from alternatively severing the consulting function from audit, including the investing public. "Accountants understand bookkeeping, system design and valuations. Accountants understand their clients. There is great synergy from accountants performing the services that they understand.

" 1 The consulting arm is critical to refining the audit; however it is regrettably feasible for both to exist as separate business functions integrated under one roof without the very nature of Independence being rendered obsolete. I could list systematically how each new obligation the act requires would downstream affect the accounting profession as we know it, but rather than waste time analyzing what others are predicting and speculating, I would rather address what really needs to occur.

By implementing reform the accounting profession could not only regain the public trust, but could also regain its' self respect as a leader and role model of integrity in business. This requires taking an honest look at ourselves, admitting where we went wrong, and making the necessary changes for the future. We purport that honesty, truth, and independence are the foundation of our profession, yet we fail to be honest with ourselves, about ourselves. The honest truth is that the economy has changed and we have not.

We have made a few changes in our ability to serve this new economy, yet we need to additionally institute fundamental changes in the accounting standards, its structure, and the overall valuation of business in order to compete and survive in this new economic era. Although I alleged to not pointlessly critique each component of the Act as so many others have, I must illuminate one area of the Act in the name of disgrace to the profession, and announce that I am appalled, but not surprised, that no one has spoken out regarding this outrage.

Mark Eastman, a lawyer specializing in securities litigation, has taken the Act and broken it into areas in order to offer his opinion and outline the various implications as such. He writes that "the certification and internal control assessment requirement of the Act will likely cause CEO's and CFO's to become more involved in the internal control process". 2 Why, what should already be standard practice, is now listed as a mandatory function of management responsibility? What is next, legislative morality? And if management has not been directly involved with the internal control process prior to The Act, what have they been doing?

Perhaps calculating and recalculating the best possible "bottom line" contribution to their personal wealth portfolios. This is the mind-set that accountants have been sustaining, consulting to, and consequentially enabling to become substantially richer, meanwhile knowing they shunned their responsibilities as managers to preserve the very processes that are the backbone of financial reporting and representation. Not surprisingly so either, because as they became wealthier, so did all of us, accountants, stockholders and the general investing public.

I shouldn't put all the blame on corporate management however, because if Bates vs. the State Bar of Arizona had ruled in favor of preserving the professionals' Code of Ethics, which banned advertising and competitive bidding, then the need to compete and hence differentiate accounting services via the consulting arm would have been a speculation of consequences rather than a reality of unintentional ones, and the profession would still be serving the client, instead of the accounting industry providing a product to the consumer.

John L. Carey, in his book, Ethical Standards of the Accounting Profession, wrote, "One way of avoiding the impression that money-making is the primary interest is to avoid behavior commonly associated with commercial activities–for example, advertising, solicitation, and the giving and receiving of commissions.

" Further he stated, "To undertake management services as a 'business' while simultaneously carrying on an accounting practice as a 'profession' would undoubtedly create confusion and would dilute the prestige of the certified public accountant in both fields. "3 In 1977 the Bates ruling, allowing for the ability to do straightforward marketing, brought the novel concept of competition into the forefront of the professionals' repertoire of business practices.

4 However, to try to correct the situation that brought the professions – both law and accounting – to this disastrous point without understanding the recent history of professional practice, is an effort in futility. This along with help from institutions like the US Department of Justice, the Federal Trade Commission, some Big 6 accounting firms and the AICPA itself, have all contributed to the commercialization5 and hence sacrifice of the profession in exchange for capitalist business practices and increased wealth to its' members.