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Tougher Accounting Rules Needed, says Head of Top Firm - 2002-06-18

The head of the world's largest accounting firm, Michael DiPiazza of PriceWaterhouseCoopers, Monday addressed the ethics crisis in his profession triggered by financial fraud at companies including Enron, Arthur Andersen and Tyco. The corporate executive told the National Press Club much tougher accounting rules are needed to win back public confidence.

Mr. DiPiazza said American accounting standards must be simplified and made more comprehensive like those that prevail in the European Union. He rejected suggestions that increased government regulation is needed. Mr. DiPiazza said the crisis of confidence will be overcome by more transparency in financial data, tougher voluntary accounting standards and corporate integrity.

"What we have lost today is a sense of integrity in our markets. Individuals of integrity simply do the right thing. Not what is expedient, not what is permissible, but the right thing. You can't compromise the right thing," he said.

As widespread bending of accounting rules at a number of major companies has been revealed, the public has increasingly become cynical about the financial practices of corporations. Individual investing in the stock market is down. Mr. DiPiazza suggested that accounting impropriety is a response to the brutal market pressures to produce quarterly financial results that match analysts predictions.

"It puts incredible pressure on management to hit the estimated numbers [of profits and sales]. And it trickles right down the supply chain. So the corporate board gets it. The analysts get it. The accountants get it," he said.

Mr. DiPiazza said the obstruction of justice verdict against Andersen announced Saturday does nothing to address corporate governance. But unlike Andersen, Mr. DiPiazza said PriceWaterhouseCoopers has a strict policy forbidding destruction of documents.

"Anything that we think has any relevance to an audit we save. I wish we didn't have to save quite as much because it takes a lot of warehouses. But we save everything for seven years," he said.

Arthur Andersen, the accountant for the bankrupt energy trading firm Enron, was convicted of knowingly destroying audit documents. Andersen, which was one of the five biggest accounting firms, is not expected to survive. Most of the firm's clients have chosen other auditors.