Limited Tenure For CPA Firms?

Arthur Levitt, who headed the Securities and Exchange Commission from 1993 to 2001, “sought to root out conflicts of interest at audit firms in 2000, and urged Congress to adopt auditor term limits in 2002 after the Enron and WorldCom scandals.”[1]  Levitt did not buy the argument made by companies that it would cost them a lot of money to change audit firms. To be sure, he acknowledged that some added cost would be entailed in a system of mandatory auditor “term limits,” but a long auditor relationship “raises the perception,” he maintained, “that the auditor is very much beholden to the company and not totally independent. An environment of skepticism should trump the fraternal environment that tends to occur after a relationship has developed over a period of years.”[2] Indeed, Arthur Andersen’s people were well ensconced at Enron by the time the energy giant went bust. In fact, the auditors even approved the questionable “partnership” accounting (used to hide debt).  Nor did the auditors communicate any misgivings to the audit committee of the company’s board of directors. The auditors were “in” with a rancid management. 


The full essay has been incorporated into "A Proposal: Limited Tenures for CPA Firms"  at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.  

1. Emily Chasan, “Keeping Auditors on Their Toes,” The Wall Street Journal, October 19, 2011.
2. Ibid.

Conflicts of Interest at the Federal Reserve

In 2011, “(m)ore than a dozen members of the regional Federal Reserve boards have had ties to banks or companies that received emergency funds during the [2008 financial] crisis, according to [a GAO report]. The report highlights a close relationship between the Fed's regional banks and many of the institutions they were lending to, adding credence to concerns that the financial sector enjoyed a largely consequence-free rescue in the wake of the crisis, thanks to its connections with the federal government.”[1] Meanwhile, mortgage borrowers with houses “under water” got hammered. From the crisis to the release of the GAO report in October 2011, there were millions foreclosures in the United States, with very little in the way of mortgage modifications or refinancing for those homeowners who needed relief. In other words, the bankers had connections in the banking regulatory agency while Congress left the troubled homeowners—constituents—at the mercy of the bankers. Their agency having their backs, the bankers could afford to take a hard line on the mortgages. The playing field, in other words, is not at all level. 


Material from this essay has been incorporated into "The Federal Reserve" in  Institutional Conflicts of Interest, which is available in print and as an ebook at Amazon.  

1. Alexander Eichler, “Conflicts of Interest Abound at the Federal Reserve, Report Finds,” The Huffington Post, October 19, 2011.