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For Immediate Release:
June 27, 2002
For More Information:
Ed Mierzwinski
202-546-9707

Accountants Overwhelmingly Control State Accounting Oversight Boards: Group Calls For "Post-Enron" Reforms

Washington, DC - The only state or federal public agencies with authority to terminate accounting licenses are overwhelmingly controlled by the accountants they regulate, with 80 percent of all seats held by accountants, according to a 50-state report released today by U.S. PIRG. The report, also found that less than 20 percent of all State Accountancy Boards post disciplinary information about accountants on their Web sites.

"Accountants are supposed to be the public's watchdogs, but who is watching the watchdogs? They're watching themselves," said Ed Mierzwinski, U.S. PIRG Consumer Program Director "That's a recipe that makes it too easy for companies like Enron and WorldCom to cook the books."

"In the wake of the collapse of Enron, a company built largely on sham accounting gimmicks approved by its auditors at Arthur Andersen, state governments should take action to guarantee that their supervision of accountants is controlled by independent officials, not by other accountants," said Mierzwinski.

State Accountancy Boards are state agencies with the power to certify public accountants and take disciplinary action against them. While the federal Securities and Exchange Commission (SEC) can ban an accountant from auditing SEC-registered, publicly traded companies, only a State Board of Accountancy can grant or remove an accountant's license, added Mierzwinski.

Among the key findings of "Who's Watching the Watchdogs," a survey of state accountancy board membership in 50 states and the District of Columbia, were the following:

  • Nationally, 80 percent of board members were accountants and only 20 percent were public members.

  • Nationally, of the 51 state boards, 46 (90 percent) have boards in which at least half of the members are known to be affiliated with accounting firms.

  • There are 15 states where 75 percent or more of the board are members of the accounting industry and 9 states where there is not a single public or consumer member on the board.

  • Four states (Louisiana, Mississippi, Nevada, and North Dakota) have no statutory positions for public members on their boards. Only three states (California, Connecticut and New Mexico) provide that a significant minority (greater than 40 percent) of their boards be public non-accountant members. All states provide for a majority of accountant members.

  • Only 10 of 51 (19 percent) state board Web sites disclosed any accountant disciplinary information on their Web sites, making it difficult for consumers and investors to determine whether a firm or accountant had been disciplined.

The report also highlighted several failures of state accountancy boards to remove the licenses of accountants involved in major financial scandals, including the Lincoln Savings and Loan debacle.

"The state accounting boards don't represent investors, taxpayers or consumers—they represent the accountants," added Mierzwinski.

U.S. PIRG, along with other consumer groups, supports establishment of a strong federal oversight board for accountants, controlled by a majority of public, independent members, however, odds of final passage of a strong federal oversight proposal, such as S. 2673 (Sarbanes-D-MD) are low. However, reform is needed at both the state and federal levels, Mierzwinski said.

"Unfortunately, while Congress is mostly just wringing its hands about Enron, it's up to the states to protect their citizens' life savings," continued Mierzwinski.

U.S. PIRG called on state legislatures to adopt the following reforms:

  • Require that a majority of accountancy board members be non-accountants and fully independent from the accounting industry, selected to represent consumers and investors.

  • Fund the accountancy board adequately to ensure that its professional staff can conduct investigations of misconduct by accountants.

  • Require the board to inform the public on its website of all disciplinary actions taken against accountants and accounting firms.

"Accountants should be the public's watchdogs, not industry's lapdogs," concluded Mierzwinski. "Real reform must happen at both the state and federal levels, or we can count on more Enrons and WorldComs."

U.S. PIRG is the national lobbying office for the state Public Interest Research Groups. State PIRGs are non-profit, non-partisan public interest advocacy groups.

Who's Watching the Watchdogs is also posted on the state PIRGs' corporate reform website, www.enronwatchdog.org which highlights the state PIRG 10-point platform of needed Enron-Andersen related reforms.

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