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AICPA banking conference: future of banking system and accountants' role.

The sixteenth annual American Institute of CPAs Conference on Banking, held recently in Washington, D.C., looked at mounting problems facing banks and savings and loans and at what accountants and auditors should--and should not--be asked to do to restore the system's health.

According to Charles A. Bowsher, comptroller general of the United States, "We have a serious problem and it's not going to be easy to fix." At the start of fiscal year 1989, he said, both the Federal Savings and Loan Insurance Corporation and the Federal Deposit Insurance Corporation (FDIC) had positive cash flows; now these insurance funds average an outflow of over $50 billion a year to depositors--and indications are next year the figure will be even higher.

Bowsher reported Congress is being asked to fund an additional $80 billion for the Resolution Trust Corporation, which oversees the S&L bailout, in addition to the $80 billion appropriated since the S&L crisis began, and to raise the working capital fund to $160 billion. On the banking side, Congress has been asked to approve a new $70 billion loan to the FDIC.

"When you add up all the numbers, Congress is being asked to appropriate over $300 billion," Bowsher said. "That's the equivalent of defense spending, the largest item in the budget."

The General Accounting Office is supporting banking legislation to strengthen accounting and financial reporting standards.

Bowsher said he would like the Financial Accounting Standards Board to issue rules leading to financial reporting of the current value of assets held by financial institutions (see story above). In addition, he would like to see managements of banks with assets over $150 million document the state of their internal control systems, with the findings reviewed by auditors and published in annual reports. Bowsher also urged better coordination among management, regulators and auditors.

Accounting changes debated. Some of the legislative changes being advocated by the GAO were questioned by John E. Hunnicutt, AICPA vice-president-federal affairs.

"You don't have to be a Washington insider to know accountants have come under political fire," Hunnicutt said. "Burned by the S&L disaster, regulators now watch with a horrifying sense of deja vu as bank failures reach record numbers." He continued, "There is a powerful incentive for public officials to fix blame for the mess and show constituents they are making sure it doesn't happen again--and CPAs get caught up in both ends of that exercise."

Still, the profession's reputation in Washington remains strong, Hunnicutt said, and Congress's faith in the audit function remains essentially intact. However, he warned that Washington could insist on dictating not only what autditors do but also how they do it.

Banking bills being debated by Congress, he pointed out, rely to a significant measure on accounting and auditing to detect weaknesses in financial institutions before they become taxpayer liabilities. Congress and regulatory agencies could try to assign responsibilities to auditors that fall outside the expertise of CPAs, that create unreasonable liability exposure or that cannot be justified on a cost-benefit basis.

Referring to a recent GAO report, Failed Banks: Accounting and Auditing Reforms Urgently Needed, Hunnicutt said the AICPA explained to legislators "which GAO proposals we could work with and which were just too intrusive, too costly or too far afield from CPAs' expertise to do any good."

Hunnicutt concluded, "The accounting profession must recognize and carefully nurture Congress's inclination to view auditors as part of the solution. Properly cultivated, that goodwill can translate into deference to CPAs on technical issues and ultimately into political clout on matters of broader policy."
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Publication:Journal of Accountancy
Date:Jan 1, 1992
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