Can Large Companies be Trusted?: The Impact of Recent Financial Scandal in Corporate America
"Can Large Companies be Trusted?:
The Impact of Recent
Financial Scandal in Corporate America”
Corporate Ethics is considered as the bulwark of a stable economic activity: public trust and specifically, shareholder and stakeholders trust rests on the assumption that accountants, auditors and business executives particularly in the upper echelon, practice corporate ethics. As such, the violation of that tenet extends not only on the financial and ethical aspect of the company and its officials but on the overall economic activity that takes place.
The United States has been considered as the legion of corporate principles and ethics. Its huge economy is propelled by the public trust to invest and be secured that their money will be in good hands. However, with the advent of successive financial scandal among large companies that started in the 1980s and reached its peak in the height of the Enron Scandal and further extended with the scandal of Worldcom, Global Crossing, Qwest Communications International, and several other companies (for a complete chart, see Appendix 1).
Business schools, researchers, the government and the American public all pose the same question on how and why the financial scandal happened. This paper shall tackle the nature of large companies in the United States in lieu with the accounting and financial principles, the theories that seeks to explain the financial scandal, the accounting and the corporate management practices of the large firms involved in fraudulent financial activities and the impact of such practices in corporate America.
The Drive for Success: The nature of American Corporations
The theory of corporate control is based on the proposition that where agents have specific human capital investments in the firm, their firm-specific wealth is threatened by a hostile acquisition of the firm which may bring in a new management team (McCahery, Picciotto, and Scott, 1993). The threat of take-over is itself sufficient to induce managers to co-ordinate their strategic actions to meet the interests of the residual risk-bearers. However, the empirical evidence on the market for corporate control is contradictory, and contains many ambiguities. In the first place, it has concentrated on the issue of whether the threat of hostile take-over reduces the non-value-maximizing actions of agents: but post-merger studies in the UK and USA show only slight differences in profitability between companies that became takeover victims and those that did not (McCahery, Picciotto, and Scott, 1993). There has been much less attention given to the extent to which take-overs provide an avenue for managers to maximize self-interest by value-reducing defensive strategies, such as 'poison pills' and other forms of dilution of capital (McCahery, Picciotto, and Scott, 1993).
The consolidation of the giant firm in the 1920s, and the survival and recovery of such firms following the crash and great depression, were the basis for the development of managerialist theories (Chandler 1962). The dispersion of share ownership and legal changes introduced the flexibility necessary for management to organize large, multi-divisional companies, subject to minimal constraints on managerial behavior (McCahery, Picciotto, and Scott, 1993). Managerialist theories emphasized the logic of size in terms of scale economies, and focused on the rationality of corporate decision making in hierarchical bureaucracies. Critics argued that the lack of accountability of management undermined efficacy and rationality, but they did not challenge the managerialist consensus (McCahery, Picciotto, and Scott, 1993). The managerialist theories were at their pinnacle in the post-war period of growth and relative stability, and it was perhaps not surprising that, with the transition to greater volatility in the financial markets in the 1980s, contract-based theories should come to the fore.
McCahery, Picciotto, and Scott (1993) collected a volume of a first sustained attempt to transcend the new institutionalist and contractarian visions, which, during the 1980s, became the mainstream perspectives in academic and policy-oriented discussions of the corporation. However, as the excesses of the market for corporate control reached their peak at the close of the 1980s and attention shifted to regulatory failures and the need for enhanced corporate accountability, the limits of the existing theoretical approaches became apparent. Based on a simplistic dualism of the firm and the market, and failing to draw on the richness of contemporary social theory, the predominant law and economics approaches are in many respects inadequate, especially to tackle the 1990s agenda (McCahery, Picciotto, and Scott, 1993).
First, there is an awareness of the greater variety of patterns of economic and social relationships institutionalized in the corporate form (McCahery, Picciotto, and Scott, 1993). Secondly, financial markets entered a new era, often referred to as the Big Bang, in which the increased velocity, complexity, and volatility of the markets disrupted existing forms of regulation and broke down barriers separating professional groups, while increasing competition for professional services (McCahery, Picciotto, and Scott, 1993).
Finally, and perhaps most importantly, a new phase of globalization has created greater awareness of contrasts between national patterns of financing and managing business activities, as well as styles of regulation (McCahery, Picciotto, and Scott, 1993). The dismantling of non-tariff protective walls has not only created new competition between firms in industries (especially in services and utilities) previously substantially shielded from world markets; it has also called into question the adequacy of existing business regulations that would manage the financial statements and portfolio of large companies.
The managerialist theories had already emphasized the asymmetries of information due to diffusion of share ownership and managers' expertise and superior access to information, especially about the firm's assets (McCahery, Picciotto, and Scott, 1993).
Conversely, there has been a process of more overt politicization of the fields of corporate regulation: for example, in both Europe and the USA the tensions between the political and regulatory criteria in decisions on mergers and take-overs are increasingly evident. A politics of corporate regulation can be seen to be emerging, which purely economic approaches cannot easily comprehend. In particular, important aspects of cultural differentiation are often neglected, especially in economic accounts.
There is no definitive link between good boardroom behavior and good financial performance. And it is difficult for regulators and shareholders to convince some companies to invest the time and money needed to improve their corporate governance. Lack of oversight and strategic planning by board members might not cause disasters, but it certainly creates a circumstance where disasters are more likely to take place (Maguire, 2002).
Ethical Analysis: A Professional Responsibility
Missing in most discussions of ethics is the fact that, by definition, ethics is the part of philosophy that deals with the practical application of those actions over which we have control. Professionals are expected to maintain "high standards of achievement and conduct. Therefore, ethics is very much an appropriate philosophical mode of analysis and is integral to the definition of a profession. While ethical decisions may appear to be strictly subjective, they are made in the context of personal as well as professional lives. Individual ethical conduct must be carried out in conjunction with other individuals as well as within the context of the organization. The individual dealing with a personal ethical response to a given situation does so within an organizational structure which itself has defined certain responses as ethical or unethical. When significant differences exist between the ethical beliefs of the individual and that of the organization, conflicts arise. The same is true when differences exist between the company and the societal context in which the company operates.
Whether a company chooses to address the importance of ethics in decision making in a formal manner (e.g., through the promulgation of a code of ethics) or otherwise, it is inevitable that the decision made is evaluated by all stakeholders and not just the stockholders. The stakeholders are all individuals or groups involved with the company, both internally and externally, who are affected by its decisions. The financial press is full of examples that indicate the impact that unethical decisions can have on a company and its relationship to the stakeholders who are part of the corporate culture.
These responses point to two critical factors that must be addressed by a company serious about incorporating ethics into its decision making process: the short-term versus the long-term view of what is good business, and the need to evaluate the ethical implications of a decision as part of the decision making process, rather than as a reaction to a third party's criticism of the decision. Accordingly, to ensure its importance, ethical analysis must be institutionalized as an integral input into all phases of the decision making process.
The Flaw in the US Financial System
The fall-out from the ENRON scandal pointed to a number of apparent weaknesses in the US system of oversight, based on checks and balances, which appear to have allowed certain types of abuses to the detriment of investors, creditors, employees. In general the market has proved itself to be vulnerable to fraud and unable to ensure an adequate level of security. Several weak points may be identified (The Integrity of Financial Markets, 2002):
· Accounting Rules: the FASB rule n. 140 allowed Special Purpose Entities (SPEs) (see footnote 1) not to be included within the consolidated balance sheet, subject to meeting mechanical conditions that do not necessarily reflect economic substance. ENRON's management made an extensive use of SPEs to hide losses from the company's accounts. Interestingly enough, it was the failure to meet these specific requirements (e.g., a 3% ownership by independent parties) which led to the unraveling of the abuses. The marking to market system normally applies to the evaluation of contracts of goods and financial instruments according to the fair value principle, e.g. the price that would be paid in the current market in transaction between willing parties. The management misapplied it also to the company's contracts of services and products, with an intentionally overly optimistic evaluation of (hypothetical) profits;
· Abuse of Stock options Incentive System: a massive use of stock options (which under US accounting rules are not required to be accounted for on the balance sheets as 'costs') led the management to inflate the (hypothetical) profits supporting the value of their shares on the market;
· Statutory Audit and Corporate Governance: interests or inattention of 'independent' directors, internal auditing committees and managers appear to have converged in a way that undermined their respective control functions, to the detriment of the company's shareholders and other stakeholders;
· Independence of External Auditors and Supervision of the Accounting Industry: external accountants, responsible for auditing the company, were acting under an apparent conflict of interest when providing the same audited company, much more profitable consultancy services that might jeopardize their independence. Moreover, US rules provided no rotation amongst accounting companies, given the practical difficulties and inefficiencies of rotating the auditors of large multinational operations. Supervision of the accounting sector also suffered from a lack of independence, with auditing companies being scrutinized on a peer review basis and the body in charge of supervision being an ad hoc board;
· Intermediaries, Financial Analysts, Rating Agencies: certain commercial banks and investment banks appear to have had their incentive to be vigilant upon credits, loans, or investments weakened by a desire to obtain more lucrative advisory fees from the same company (issues and placement of securities, trading, M&A, etc.). Financial analysts and rating agencies appeared not to have been immune to the myth of the success of the company, with their objectivity or research suffering as a result
The feeling of mistrust and diffidence that investors expressed in the markets following the last months' accounting scandals, prompted a strong intervention by US legislators: on the 30th of July 2002 the 'Public Company Accounting Reform and Investor Protection Act of 2002' ('the Act'), promoted by Senators Sarbanes and Oxley and modifying, inter alias, the Securities Exchange Act of 1934, was adopted.
The Ethical Issues among Accountants: The Architect of Financial Management
In the business community, the resolution of ethical conflicts does not easily lend itself to objective quantitative analysis. Managers frequently leave ethical discussions open to a number of interpretations, and subordinates are left to sort out the issues and forever wonder if they have done the right thing. (Cohen and Turner, 1990) There is little guidance in the form of specific rules or case studies as to how a particular ethical problem should be addressed. It is as if ethics in general terms must be left to philosophers and theologians.
A high ethical standard is presumed of the CPA in public practice. This is especially relevant now because the AICPA Code of Professional Conduct has recently been extended to include all CPAs, not just those in public accounting (Cohen and Turner, 1990). There are initiatives emanating from both the public and private sectors that address the concerns raised by companies, employees, and society at large about ethical standards. These serve as a backdrop to reinforce the CPA's obligation to be armed with a consciously developed set of high ethical standards. In addition, examples of ethical dilemmas that confront the CPA in industry can be used to raise the consciousness of professional accountants involved in decision-making.
There is evidence from surveys of practitioners that accountants in the private sector might be under pressure to ensure that financial results meet expectations, both internal and external to the company. This raises a practical question about whether ethical behavior is at odds with the notion of maximizing reported profitability.
The belief in corporate social responsibility does not deny the importance of profits and financial viability to the company. Rather, it sees ethical decision making as an integral part of sound business decision-making and as having a positive effect on its long-term financial success. Support for this exists in the popular financial press. In a Fortune article ranking America's most admired corporations, one of the eight criteria used for evaluation was a sense of responsibility to community and environment (Davenport, 1989). The well-known management analyst Peter Drucker goes further, encouraging a company to turn a social problem into an economic opportunity and benefit rather than viewing it as a cost to be absorbed (Drucker, 1987).
Just as companies adopt models for decision making in their approach to responsibility accounting or capital budgeting, it is imperative that they also provide a framework within which to evaluate the ethical implications of their decisions. This extends beyond the adoption of a corporate "code of ethics" to the implementation of a working model that can serve to provide guidance to employees in their every day handling of complex and ambiguous situations. Failure to adopt this working model can result in the creation of a "moral vacuum" that allows each of the employees to decide for themselves what will, or will not, constitute ethical behavior. While some have dismissed the entire process on the basis that ethics cannot be taught, others have decided that, at a minimum, it is critical to raise the ethical consciousness of those who work within the company (Cohen and Turner, 1990).
This process of consciousness raising can be accomplished from a number of perspectives. A corporate code of ethics is certainly a beginning, but it has been well documented that the code must become a living document that begins with the "tone at the top (Business Week, 1988)." Unless ethical questions are discussed before the situations arise, the response may not be well thought out but will represent an attempt based on different and possibly conflicting views of what constitutes the most appropriate response.
CPA Ethical Practices
If one accepts the tenet that a code of conduct directing ethical behavior is a critical part of the definition of a profession, then it is important that a mechanism exist for incorporating ethics into the decision making framework. While professional organizations and numerous companies have put emphasis on this process for years, there has been a renewed call on many fronts during the past decade. In part, this is a result of violations of ethical behavior in every aspect of society and, from a purely pragmatic point of view, actions to avoid excessive regulation and costly litigation. Three major initiatives affecting the CPA are emanating from professional accounting organizations, educational institutions, and the business community at large (Cohen and Turner, 1990).
The National Association of Accountants (NAA), the world's largest organization of management accountants, has also been actively involved in promoting ethical behavior among accountants in the private sector. The NAA's Standards of Ethical Conduct for Management Accountants has emphasized the obligation of management accountants to organizations they serve, their profession, the public, and themselves to maintain the highest standards of ethical conduct (National Association of Accountants. 1983). Since accountants produce and monitor financial reports both for internal and external use, it is imperative that their integrity be beyond reproach.
Despite these initiatives promulgated by the professional accounting organizations, Stephen Zeff (1987) in an article entitled "Does the CPA Belong to a Profession?" has raised two issues that may adversely affect the CPA's professional status. The first issue he discusses is that diversified services draw firms into competition with other disciplines that have few or no professional/competitive restraints. He suggests that this may erode the professional judgment of the accountant. The CPAs in private practice face these same issues of competition and diversification that impinge on their ability to maintain an appropriate professional response to ethical questions.
Zeff (1987) also argues that ethical and judgmental problems may arise because of the increase in a rule-dominated practice. The problem of a rule-dominated practice is that it may lull us into a false sense of what is right and wrong by viewing decision making through a legal/illegal lens. Here the concern becomes one of form over substance with ethical decision making being replaced by legal decision making (Zeff, 1987).
The Financial Scandal Among Large Companies
While recent accounting scandals have taken down highfliers like Houston-based Enron corp. and shaken investors, the news that there is something terribly wrong hidden in the financial statements of major companies comes as no surprise (Gray, 2002). More and more businesses are looking to forensic accountants to put that puzzle together long before they are exposed to financial losses that can stem from either fraud or accounting shenanigans (Gray, 2002). In the past, companies undertook a forensic audit when they had a suspicion that fraud had occurred, or needed experts in court to help quantify damages from a contract that had gone bad or some other business dispute. But now investors, venture capitalists and potential business partners are hiring forensic accountants to investigate a company before they enter a contract, contemplate a merger, or merely invest in the company's stock (Gray, 2002).
Bankers can watch these scandals unfold and think that it could never happen to them. But when seemingly reputable businesses run afoul of legal and ethical rules, one of two things has happened (Barefoot, 2002): (1) Employees have broken the rules intentionally and; (2) They have broken the rules without realizing it. At Enron, the alleged wrong-doing occurred at the very top of the company--the CEO and other senior executives stand accused of personally. At the heart of the Enron scandal is the allegation that the independent judgment of the firm's outside accountants, lawyers, consultants, and board was compromised.
The fall of Enron presents speculative capital with a particularly vexing crisis; its history reflects in many ways the role and workings of speculative capital (Davis, 2003). Skilling's success in the speculative side of Enron propelled him past the assets development group, which focused on old-style projects like building power plants, and in 1997 he became President and Chief Operating Officer of Enron (Davis, 2003). Although the process was never completed, Skilling pushed to shed Enron of its `hard assets' in power plants and pipelines. Enron built a sophisticated speculation operation, Enron Online, and then began branching out past energy trading, introducing trading in weather futures (Business Week, 2001). Enron dabbled with moving into water trading through its Azurix spin-off. It invested some $1.2 billion in building a fiber optic network with the intention of creating a market in data network capacity (at the same time, a dozen or more other companies were also rapidly laying new cable). In July 2000, it launched an online metals speculation operation; two months later, it also started an online speculation operation in wood products (Business Week, 2001).
As the stock started to slide, Enron executives began to unload stock; Skilling's personal take was $17.5 million (Business Week, 2001). One lawsuit suggests that Enron executives made $1 billion from stock sales before the company collapsed. After Skilling's departure, the stock continued to fall to half of its value a year earlier, destroying the collateral Enron had used in its partnerships. In October, the company started laying off people and announced a quarterly loss after taking over $1 billion in `charges'. By November, the company's debt had been downgraded to junk status and stockholder lawsuits had begun. In December, following the collapse of merger talks with competitor Dynergy (after Enron revealed that it had additional, previously undisclosed, debt), the company filed for bankruptcy, the largest ever in US history. It later emerged that Enron paid over $55 million in bonuses to 500 employees days before filing for bankruptcy. 4,000 employees lost their jobs and their retirement money tied up in Enron stock. State pension and endowment funds in twenty-one states lost a total of $1.5 billion. The collapse touched even more people through the hundreds of mutual funds that held Enron stock (Zuckermann, 2002).
It wasn't long ago that bringing up accounting matters would produce bored, vacant expressions. That's because the profession was widely viewed as dull, although trustworthy enough. Last year, a study prepared by financial services research firm Kroll Associates for the Canadian Institute of Chartered Accountants (CICA) found that CAs are "esteemed for their ethics" and that the business community rated CAs the most ethical among 10 professions (Mcclearn, 2002). "The quality of audited financial reporting is also rated highly," it found. Perhaps. But suddenly, raise the word accounting and you could be confronted with cynicism, anger and tales of rogue accountants juicing stock prices and shredding documents with a zeal not seen since Watergate.
You needn't look far for the reasons behind this abrupt attitude shift. Over the past two years, volumes of shareholder wealth evaporated as the audited financial statements of certain companies were revealed as creative fiction (Mcclearn, 2002). The most poignant example is the scandal surrounding Enron Corp.: the Houston-based energy trader overstated profits and hid debt from investors for years, its audit committee permitted obfuscation in public disclosures, and auditors at Arthur Andersen LLP (one of the world's "Big Five" accounting firms, a group that also includes Ernst & Young LLP, PricewaterhouseCoopers LLP, Deloitte & Touche LLP and KPMG LLP) rubber-stamped Enron's bogus financial statements (Mcclearn, 2002). After Enron's malfeasance came to light, Andersen employees went so far as to destroy documents. The fact that Enron's imaginative accounting went on for so long exposes an end-to-end failure of the system--and, predictably, the tab has been left with investors, creditors and employees.
The Impact of the Financial Scandal
Over the past two decades the economy have experienced a gradual erosion of ethical values on the part of corporate America (The International Economy. 2002). A raging bull market, either a byproduct or consequence of the moral decline, seduced investors and created the kinds of excesses that ultimately resulted in the bear market and severe investor backlash. The kind of hype and exaggeration that has always been present in bull markets becomes exacerbated by the leverage inherent in products such as derivatives and options. This gives greater velocity to the consequences of all investment decisions. The euphoria of the period persuaded analysts, brokers, and investors that all of their decisions made money and that their wisdom and insights would invariably lead to success (The International Economy. 2002).
Time for self-regulation has passed, and to restore public confidence the country need to have the kind of oversight promised by the Sarbanes-Oxley bill. The bill also does a number of other very important things by giving the SEC badly needed resources and providing independent funding to the Financial Accounting Standards Board (The International Economy. 2002).
All of these ethical breakdowns in the financial markets have raised a lot of arguments again that large corporations may have gone too far, with deregulation and that even though there were a lot of flaws in old laws like Glass-Steagall, there were also some important protections like prohibitions and firewalls (The International Economy. 2002). More and more countries realize that a strong securities law and a strong regulator are fundamental to the creation of a world-class market.
In the wake of apparently dishonest practices by Enron Corp. executives, and apparent negligence by members of its board of directors, many are asking how people believed to be so smart could have lacked the moral courage to seek and tell the truth (Berlau, 2002). As there is after every financial scandal, a call is being made for more courses in "business ethics" in the leading universities. This pervasive view among faculty that successful businesses are by their very nature corrupt is itself corrupting to students in business-ethics classes, says Stephen Hicks, chairman of the philosophy department at Rockford College in Rockford, Ill (Berlau, 2002). Hicks says business-ethics professors need to stress that business is a creative endeavor, like art or music, in which integrity must play a central role (Berlau, 2002).
The events of the past 10 months have certainly provided a lot of evidence about the U.S. economy's enduring resilience and strength. Despite the worst terrorist attack on U.S. soil, fears that it could happen again soon, and a string of sordid corporate scandals that have undermined investor confidence and sent stocks into a nosedive, the economy is still growing at a healthy rate. As the latest accounting scandal struck the once-mighty WorldCom telecommunications empire - casting another dark cloud over Wall Street's gloominess - there were also signs of economic vitality across much of the country (The Washington Times. 2002).
However, still there is sufficient evidence that the financial scandals that hit WorldCom, Enron, Global Crossings, Tyco International and Qwest Communications have shattered investor confidence (The Washington Times. 2002).
In most of these cases, the courts have yet to determine legal culpability. But public opinion, already convinced that something was terribly amiss, has mercilessly punished the businesses involved (Barefoot, 2002).
Nevertheless, since the initial Enron disclosure, we've seen a rising tide of unambiguous evidence that what many of us suspected throughout the Wall Street-driven economic boom is true: The whole thing always seemed uncomfortably like a Ponzi scheme (Reed, 2002).
Stock valuations surged wildly beyond firms' profitability; even companies that never showed a profit at all became the market's darlings in the orgy of speculation (Reed, 2002). Attractiveness for investors was driven as much by reports of cost-cutting and "downsizing"--at is, breaking unions, speeding up and laying off workers, and cutting full-time jobs and benefits--as by sales or production figures. Companies increasingly supplanted defined-benefit pension plans with defined-contribution plans, like the now notorious 401(k) plans, and supplanted--often pressured or coerced--workers to buy company stocks (Reed, 2002).
Pundits and hypesters roundly hailed the stock market as the real democratizing force in America and the world: Anyone, regardless of station, with proper diligence and effort could attain wealth, luxury, and independence. At the height of its exuberance this rhetoric sanctified day-trading as the zenith of human freedom, a kind of Ayn Rand utopia. In reality, it was really just a form of video poker that preyed on compulsive gamblers with more liquid assets (Reed, 2002).
The scandals of Enron, WorldCom, Global Crossing, Tyco, et al., have exposed a cesspool of fraud and corruption at the highest reaches of corporate power. Even prodigious corporate tool Tom DeLay now chirps about the need for more federal oversight (Reed, 2002).
The line between insider-trading and the acceptable use of contacts and intuition is very fine and porous. Similarly, large firms with multiple divisions operating semi-autonomously, often trading back and forth internally, can only be expected to record their transactions in the ways most favorable to enhancing the firm's stock position. Accounting firms--even large, prestigious ones--know who their clients are and what those clients need or prefer. The bigger the account, the more the accounting firm will aim to please. And there are enough gray areas, with all the funny-money transactions that occur between divisions and subsidiaries, to hide or misrepresent revenues, expenses, profits, and losses almost at will.
The current exposures of corporate flimflams threaten a crisis of confidence in the market partly because the firms involved were so large, but partly also because the pool of those who were able to protect themselves is so tiny. That bracing fact is what has led to a revival of regulatory spirit within the corporate elite itself, though the converts' zeal may not be very deep or genuine.
There are larger lessons to take from this corporate crisis, as well. First of all, capitalism is capitalism, and the tendency to produce this kind of crisis is endemic to it as an economic system. There's no technical fix, no new technology or religion that can eliminate that tendency. The more complex and more extensive a capitalist economy becomes, the deeper and more devastating its periodic crises will be, particularly in the absence of efforts to equilibrate market forces in the interest of social stability and the common good (Reed, 2002).
Change is already underway. A few US companies, such as IBM Corp. and General Electric Co., have amended some accounting practices and increased disclosure in recent months to placate concern (Mcclearn, 2002). Brokerages such as Merrill Lynch & Co. are instructing analysts to look beyond the sunny financial pronouncements of management when researching companies (Mcclearn, 2002).
Generally accepted accounting principles, or GAAP, are the conventions, procedures and guidelines that govern how the accounting profession goes about its work. GAAP has been roundly criticized because it permits unscrupulous executives and accountants to use stock options, special purpose entities (such as the partnerships Enron used to mislead investors) and other instruments to distort their company's financial performance, while technically staying within the letter of the law. CICA is already working to modify how special purpose entities, derivatives and other instruments are accounted for (Mcclearn, 2002). But some critics want rigid rules on everything from stock options to pension accounting.
In March, 2002 the OSC announced the results of a recent review of quarterly reporting. Of the interim reports of 150 issuers, it found problems with 77-and 17 were reified due to noncompliance (Mcclearn, 2002). In the US, the SEC decreed that companies could be sued for failing to explain in detail how they calculate pro forma or adjusted earnings.
One thing seems clear: reforms under consideration by the accounting profession are far less radical than those advocated by outside critics. The detritus of the Enron collapse, however, as well as other irregularities, may compel companies to reconsider its moderate approach.
Financial markets are not new to cyclic crises and economic contraction and expansion (and nor are they to fraud). But what has made the present situation so critical is its dimension (no longer national but global), and the fear that more than one 'pillar' of the system has been showing the signs of age and calls now for an urgent update.
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Appendix 1: THE Corporate Scandal Sheet
SEC: Securities and Exchange Commission. CFTC: Commodity Futures Trading Commission. DOJ: U.S. Department of Justice