Recent scandals that have rocked corporate America have left the public skeptical of big business. Regaining that trust, accountants say, will take a long time.
The trouble began with Enron, whose top executives were accused of concealing debt through phantom transactions with a series of dummy corporations. Enron's accounting firm, Arthur Andersen, was deeply involved in the scandal and soon went out of business.
The scandals spread to companies that include the manufacturing firm Tyco, telecommunications giant WorldCom, the biotech company ImClone and others. Top executives were accused of hiding debt, inflating revenue or illegally using corporate information for personal gain.
The now-defunct Arthur Andersen was one of the big five global accounting firms. Four are left: Deloitte & Touche, Ernst & Young, KPMG International, and PricewaterhouseCoopers.
PricewaterhouseCoopers global chairman Sam DiPiazza says it took years to build public trust in the financial markets. "It takes seconds to destroy it. I don't think we've got it back. I think we've made some steps to start the road back," he said. "But I think it's going to take us a number of years of good performance."
Mr. DiPiazza, who addressed a business group called Town Hall Los Angeles, said restoring public trust requires a better economy and the belief that newly enacted safeguards are working.
The U.S. Congress last year imposed requirements on top corporate officers, who must now certify that financial reports are true, to the best of their knowledge. In a sweeping response to the scandals, Congress also created a new board to oversee corporate audits, while imposing harsher penalties for business fraud. President Bush quickly signed the legislation, called the Sarbanes-Oxley Act of 2002, soon after it was passed.
Mr. DiPiazza sees Sarbanes-Oxley as a good first step to solve the corporate world's financial ills. But he thinks responsibility for the current business scandals is shared by many people, who make up what he calls a corporate "supply chain."
"The supply chain here is the management, the board, the auditor, the analyst, it's the media, and it's the investor," he said. "And every one of them fell down in this process. Every single one of them."
He says corporate management bent the rules and focused on short-term profits, boards of directors did not provide proper oversight, accounting firms ignored their responsibilities to investors, financial analysts had conflicts of interest, and the media and public did not probe deeply enough if a company seemed to be making money.
He says reform requires improvement in each of these areas, and another that is specific to the U.S. accounting profession. He says U.S. accounting standards are based on books of rules hundreds of pages long, and some of the rules are contradictory. European standards, by contrast, are simpler statements of principles that leave less room for financial manipulation.
The U.S. governing board that oversees public accounting is now revising its rules, hoping to craft a standard that promotes accountability and transparency.