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To accountants: Welcome to the Club

(Article published in the July 15, 2002 issue of TODAY, Business Section)

This week, if I am not mistaken, is Accountancy Week, but even if not, it is as good a time as any to salute an essential member of the estate planning team, the accountant. I reserve for another day the sweeping reforms in government accounting put in place by the Commission on Audit and for still, another Securities and Exchange Commission Resolution 264 Series of 2002 dated July 4, 2002, issuing Circular 10 which effectively forces the alignment of Philippine GAAP with international standards of accounting.

These unsung measures, instituted respectively by Gem Carague and Lilia Bautista, two quiet achievers of the Arroyo administration who deserve ten-fold the publicity the broadsheets are currently giving to a certain Pastor "Boy" Saycon, each require solo coverage and full concentration not possible after a three-day week-end. For today, I prefer to simply roll out the red carpet for my friends in the accounting profession.










Welcome to the club. We lawyers are no longer the only bad guys. Thanks to Enron and the American corporate confidence meltdown, you have just become, in the public’s eye, company in our misery, and, I must say, you did it in style. My idol, English Chancellor and himself a lawyer, Saint Thomas More in his ideal land called Utopia excluded lawyers because they are "a sort of people whose profession is to disguise matters". He must right now be revising his magnum opus in his heavenly study.

Nobody could have predicted it, certainly not I who speak the name of accountants with bated breath ever since I passed by the skin of my teeth the one-unit course called Legal Accounting in First year law. But happen it did. From an almost priestly class whose statements are read and revered like the holy writ by lending banks, government agencies, and trusting investors, accountants have become like lawyers. Clients forever harboring an unsaid question, "can I trust this one?"

Hardly had the world recovered its senses after September 11 when it was shocked by Enron’s admission that its losses were kept "off-books" through the creation of outside partnerships. Perhaps in panic and fear of the congressional investigations that were to follow suit, its auditor Arthur Andersen shredded boxes and boxes of relevant records. (It was, of course, was amateurish to make others, more so a machine, to do the dirty job. Some of my pot-bellied brothers in the profession say that the more satisfactory way is to eat the evidence of the opposing party during the course of a hearing.)

After Enron and Andersen, there was WorldCom, booking US$ 3.8 billion as capital expenditures what should have been classified as current expenses. It was thus able to report a profit in 2001 of US$ 1.4 billion when it actually had a net loss. And there were others. In no particular order: Xerox Corp. admitted to improperly reporting US$6.4 billion in revenue over a five-year period by pre-maturely booking revenue from some sales and leases. Qwest Communications International, Inc., which like other telecommunications companies bought and sold fiber optic capacity to be delivered over a number of years; but then, it reported all the revenue from the sales up front even as it booked purchases as capital expenditures and therefore amortizable over a period of time. Adelphia Communications Corp. filed for what we locally know as suspension of payments, after being investigated for what our bankers routinely call "DOSRI", lending and advancing huge sums of money to the family of John J. Rigas, its former CEO.

Other companies, big in the U.S. though not household names here, restated their earnings. Tyco International said it would restate its second quarter earnings for 2002 by US$ 4.5 billion; CMS Energy announced it would correct US$1 billion of what the industry calls "round-trip" trades for 2000 and US$ 1.2 billion for 2001; Network Associates, blaming its problems on intentional errors made by a single employee, restated results for 1998, 1999 and 2002; Peregrine Systems, Inc., a San Diego software manufacturer, Reliant, a Houston energy company, Homestore.com, of Westlake, Rite Aid and Cendant, all admitted to inflated earnings and had scrambled to revise their reports downwards. The list is, to all appearances, open-ended. Says US President Bush: "More scandals are hiding in Corporate America".

That accountants have arrived is authenticated by the proper response from the American government and American business. In true bureaucratic tradition, the US SEC issued an order requiring the CEOs and CFOs of companies with more than US$1.2 billion in revenues to swear under oath, thereby exposing themselves to the whims and whiles of America’s litigious society, that the numbers in their recent financial reports are correct.

Mr. George W. Bush, still lacking the flair and eloquence that made Americans forgive his predecessor’s sexual morals, took to the rostrum and tried to convince Corporate America to shun dubious practices, among them giving their top officials concessional loans and advances. He, of course, did not consider inappropriate that as of 30 March 1990, he owed Harken Energy Corporation US$ 180,375 on account of two loans he got, at 5-percent interest, while he himself was director and consultant of the company.

The U.S. Senate and House of Representatives each crafted anti-corporate fraud bills, a sure way that the matter, before becoming law, would have to go through what political scientists call the third house of Congress, namely, the Conference Committee, to iron out their differences on how hard or lightly the wrist of their political contributors should be rapped.

In the business sector, the corporations went into a frenzy firing their external auditors but because, with the exit of Arthur Andersen, there are only the Four Big to choose from, a sort of wife-swapping orgy ensued. Deloitte & Touche was fired by Aldephia Communications Corporation which hired PricewaterhouseCoopers which was fired by Allied Irish Banks that hired KPMG which was fired by Valley National Bancorp which hired Ernst & Young which was fired by PNC Financial Services that hired Deloitte & Touche.

To the accountants’ breaking into the bad guys league, some lawyers had their own lawyerly response. Some simply moved away. For instance, in Europe, the Court of Justice of the European Communities upheld the refusal by The Supervisory Board of the Bar of Netherlands to authorize Mr Wouters and Mr Savelbergh, lawyers enrolled at the Amsterdam and Rotterdam Bars, to enter into partnership with Arthur Andersen and Price Waterhouse, both established in the Netherlands. The Court observed that "there may be a degree of incompatibility between the 'advisory' activities carried out by a lawyer and the 'supervisory' activities carried out by an accountant." In Canada, 23 lawyers in Calgary and 4 in Montreal moved out of their respective "multi-disciplinary partnerships" with Ernst & Young, causing the latter to shut down two of the three offices of its Canadian-tied law firm.

But American lawyers did what was most lawyerly: they made money from the situation. William R. McLucas, formerly enforcement chief of the US Securities and Exchange Commission and now with Wilmer, Cutler & Pickering, was hired by Enron, Tyco International and WorldCom to conduct internal investigations on their respective operations. McLucas’ firm is said to have billed Enron US$3.3 million as outside counsel to its directors. Skadden, Arps, Slate, Meagher & Flom billed Kmart for investigating allegations of corporate misconduct reportedly in the amount of US2.4 million. Corporate probes, thanks to accountants, is a lawyer’s growth industry in America.

In the Philippines, of course, the lawyer’s response is as unique as our "EDSA" brand of revolution. After all, everyone is related, by blood or affinity, by birth or education, by profession or recreation, to a lawyer or an accountant, or both. And so, now that you are part of the gang, may I ask you, my accountant friends, "Honestly, among us girls, just exactly which method of figure massage which Corporate America is now so hysterical about, was not known to you before Enron?"

   

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