Sarbanes-Oxley's effect on Ohio: A poll of business leaders and CPAs.

There has been tremendous concern about the credibility and image of the CPA profession in the "post Enron" world. To gain more insight into the scope of this problem, The Ohio Society of CPAs commissioned two research surveys to probe CPAs and business leaders about the real impact on the business community and the profession. The results to some of the questions were surprising. Clearly the CPA profession was its harshest critic, while CEOs reported continued trust in "their" CPA.

Scope of Problems

On the CPA side, the vast majority of respondents, 57 percent characterized recent corporate financial and management scandals as "occasional occurrences." Almost one-fourth, 24 percent said they were "fairly common practices," and one in five, 20 percent termed them "isolated."

Looking at the larger business community, the CEO results were fairly similar. The majority, 51 percent of respondents described recent corporate financial and management scandals as "occasional occurrences." Just over one-fifth of the respondents, 22 percent characterized them as "fairly common practices." Over a fourth, 27 percent said they were "isolated incidents."

While there was much agreement over the current state of affairs, the CEOs surveyed had slightly more confidence that such problems would diminish in the future. Over half, 55 percent, felt such problems would diminish in the future while only 45 percent of the CPAs surveyed shared that view. Another 32 percent of the CEOs predicted the same continuing frequency of such scandals, and 10 percent said they would become more widespread. On the CPA side, only 13 percent predicted these scandals would become more widespread, and 40 percent felt their frequency would stay the same.

Focus On Reform

While the CPA profession has born the brunt of scrutiny by the media and the public resulting from high-profile business failures, business and corporate leaders recognize there is no one silver bullet to inoculate against future scandals. Considering these problems, the plurality of the CEOs, 43 percent identified securities analysts as needing the most reform, followed by stockbrokers, 17 percent, investment bankers, 15 percent and CPAs, 11 percent About a seventh of those surveyed, 14 percent, did not know which profession needed the most reform.

Impact Upon Accounting Profession and Relationships

However, all CEOs felt these scandals had affected the credibility of the accounting profession, butte varying degrees. The percentage of CEOs reporting the effect being "to a great extent" was 38 percent and to some extent was 52 percent Three-fourths of the respondents, 74 percent, felt associated criticism of the accounting profession was justified or highly justified, 8 percent Only a little over one-in-ten, 13 percent characterized the criticism as unjustified. These numbers closely mirror what CPAs have said themselves. When commenting on the criticism of the profession, over a fourth of the Society members, 27 percent, concluded that the associated criticism of the accounting profession was unjustified compared to 69 percent terming it justified.

CPAs went on to say that the public now views accounting far more negatively, 15 percent more negatively, 39 percent, or somewhat more negatively, 41 percent Only 5 percent perceived no change in the public's view.

The CEOs were less critical than CPAs about the profession. They viewed the accounting profession far more negatively, 5 percent, more negatively, 29 percent or somewhat more negatively, 39 percent About a fourth, 27 percent reported no change in their views. Validating what the CPAs have said they are hearing from their clients, nearly two-thirds, 63 percent said these issues had no impact on their organizations' relationships with their own accounting firms.

Likely Changes In the Profession and Business Practices

Business leaders identified the potential changes that could occur in both the CPA profession and the way business and CPAs work together as a result of these problems. They ranked their likelihood as follows:

* Will need to engage separate firms for a) auditing and b) other services-27 percent

* Corporate boards will become more aggressive--24 percent

* Retaining/recruiting board members will be more difficult--15 percent

* Audit fees will increase--12 percent

* Overall CPA fees will rise--11 percent

* Will need counsel to review audit arrangements--1 percent

CPAs were asked a similar set of questions. Members selected the "one or two most significant impact(s)" from the following list:

* Trickle-down of new standards/regulations regardless of size/client base--38 percent

* Audit standard-setting authority from outside profession--35 percent

* New public company accounting oversight board--30 percent

* New auditor independence rules--29 percent

* Prohibition of some consulting services--29 percent

* Increased civil/criminal penalties for securities violations--13 percent

* Mandatory audit partner rotation--10 percent

Need For Government Intervention 

A third of these CEOs, 30 percent, felt self-reform could successfully achieve the changes necessary in the accounting profession. Not one respondent called for more government regulation as the sole answer to reform. However, 68 percent of all surveyed said a combination of self-reform and some government intervention was essential.

Where Do We Go From Here?

It's clear the CPA profession as a whole has taken a hit However, the relationship between individual CPAs and firms and their clients and employers remains strong. While a few business decision makers indicated that their perception of the profession had become more negative, most reported only a slight change or none at all. Each CPA needs to focus on maintaining the relationship of trusted business advisor with their individual clients and employers. It is also clear that businesses have concerns about the impact of Sarbanes-Oxley on their organizations. The numbers also show that organizations represented by the CEOs who responded, though not bound by the provisions of Sarbanes-Oxley, are electing to adhere to some of the onerous provisions which could negatively impact both them and their organizations. CPAs are the critical communication link to dispel myths and respond to employer and client concerns.

Composition of Respondents

The CPAs polled were generated randomly from five main categories of the Society membership: sole practitioner, CPAs in firms with less than seven employees, CPAs in firms of seven or more employees, national firms, and corporate/industry/education. Respondents to the CEO survey were quite evenly divided among public companies, 26 percent, private companies, 29 percent, and non-profits, 29 percent A tenth were from the public sector and 6 percent were partnerships.

Current views of the accounting profession:

                          CPAs  CEOs

Far more negatively       15%    5%
More negatively           39%   29%
Somewhat more negatively  41%   39%
No change                  5%   27%

CEOs identify the following as needing the most reform:

SECURITIES ANALYSTS  43%
STOCKBROKERS         17%
INVESTMENT BANKERS   15%
DON'T KNOW           14%
CPAs                 11%

Note: Table made from bar graph

Current views of recent corporate financial and management scandals
(e.g., Enron, Worldcom, Arthur Andersons, etc.):

                         CPAs  CEOs

Occasional occurrences    57%   51%
Isolated occurrences      20%   27%
Fairly common practices   24%   22%

Note: Table made from bar graph

Jennifer Tisone Price is vice president, communications for The Ohio Society of CPAs. She can be reached at [e-mail] or 800.686.2727, ext. 347.