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B.Z. Lee looks back - and forward.

Reflections on a distinguished career and thoughts about where the profession is heading.

As his remarkable career in public service winds down, B.Z. Lee, former chairman of BDO International, former chairman of the American Institute of CPAs board of directors and retiring head of the Institute's Washington office and AICPA deputy chairman-public affairs, consented to a departing interview. As he reflects on his years at the profession's forefront, Lee assesses the past and conveys his hopes for the future.

Journal: As you look back over your 40-year career in public accounting, what would you say have been the high points?

Lee: I've lived a charmed life, full of happy experiences in the profession, but a few do stand out from the rest. Serving as managing partner of BDO Seidman ranks among the best of them.

Actually, I was named managing partner in the midst of probably the worst crisis in the firm's 80-year history. I guess it sounds strange to call that a high point, but it ended up a most gratifying episode. We had recently merged with another firm and shortly afterward major fraud was exposed at one of that firm's clients--a diversified financial services company called Equity Funding. We were named in stockholder suits all over the country.

Mind you, this was in the early 1970s when it wasn't an everyday occurrence. We found ourselves confronted with a huge liability threat, false accusations, Securities and Exchange Commission actions and damaging publicity. But we defended ourselves strenuously, without ever distracting attention from the practice. By 1978, the Equity Funding scandal was behind us with minimal financial damage. And the firm emerged stronger than ever.

Beyond my years at Seidman, being able to serve the profession through involvement in the Institute has been one of the other rewarding parts of my career. During my time as a member of the board of the Institute, as its chairman and as head of its Washington office, the profession has seen tremendous challenges, and I'm glad I could help confront them.

And while we're talking about high points, I've got to mention receiving the Gold Medal Award. When you devote your whole career to one profession, to be honored like that by one's peers-quite honestly, it touches you in indescribable ways.

Journal: Okay, those are the high points. What about the low points?

Lee: What has troubled me most during my career has been a trend. There's been a marked rise in commercialism in the profession and a corresponding decline in--for lack of a better word---collegiality. I would call it genteelness but that's probably too old-fashioned. It seems that in years past, CPAs had a stronger sense of profession and community, of common interest and shared values. Sure, you worked your hardest to succeed, but you still saw your competitors as your colleagues. The environment today is a lot tougher, a lot scrappier.

Journal: Why is that?

Lee: There are a number of very good reasons. Most of it has to do with increased competition, of course. There are more players in the marketplace; the competition is no less than global; firms are offering a wide diversity of services. All of those changes reflect progress if-and this is the crucial if they don't compromise ethics. But they also contribute to a harder-edged, more commercial environment for the profession. As an alumnus of the old school, I lament the change. But I suppose it's part of the cost of progress.

Journal: What about the profession's future? Bright or dim?

Lee: There is every reason it should be very bright. The opportunities are there. What the leadership of the profession must do is move quickly to seize them.

Economic history is on our side; that is, economic life is getting more complicated. Technology, the internationalization of markets, the ever-lengthening tax code, the litigation threat--all of these contribute to complexity. And because things are now more complicated, people and businesses have more need for independent judgment and assurance.

At a more fundamental level, society as a whole is demanding more accountability--accountability from government, from corporations, from the media, from virtually everybody.

So we've got two trends: more complicated economic relationships and more demand for accountability. If that doesn't spell opportunity for the profession, nothing does.

Journal: Doesn't it spell risk, too?

Lee. Sure. One huge risk is, of course, liability. The more types of opinions we provide, the more assurances we offer, the more potential liability we incur. Every CPA knows our liability exposure is completely out of line with reality. The Institute is fighting hard for reforms so accountants are liable only when they're responsible and not for everybody else's mistakes.

These opportunities present another risk, though a more important one in the larger scheme of things: the risk of being left behind. It may be trite to say it but the pace of change in the world is accelerating, and the profession has to keep up. If the surge in technology and information makes old accounting and auditing models less useful, we've got to devise better ones more rapidly. If the complexity of business relationships demands creative kinds of attestations, we've got to create them.

Let's face it, members of the accounting profession have never been known as a radical bunch of reformers. But we must learn to adapt to changes in the environment as they occur--and not long after the fact. If we can do that, then I see a very bright future for the profession.

Journal: How does the profession get that done?

Lee: The responsibility belongs to the leadership of the profession. And I don't want to get off on a lecture about leadership--but let me say this--leadership doesn't seek consensus. It's the role of leadership to shape consensus.

Journal: But aren't you proposing the assumption of additional new risks? How does that square with the profession's well-known concerns about liability?

Lee: You're right, of course. But, in my view, we are not likely to get the sort of support we want, need and may be entitled to until we demonstrate our willingness to address the kinds of problems policymakers expect us to. While I hadn't intended to say it, we haven't yet addressed the expectation gap satisfactorily.

Journal: What's Washington's view of the profession? Is it well informed?

Lee: It's not very well informed. The truth is there aren't many federal policymakers who both understand and care about accounting issues. There are plenty of folks at the General Accounting Office and the SEC who do, but beyond that, not many.

On Capitol Hill there's a relative handful of people, albeit powerful, who delve into the profession's issues. Interestingly, that handful and their ability to influence our future have grown measurably in recent years.

Journal: Why is that?

Lee: Unfortunately, it's because of financial failures, principally the savings and loan crisis. Over the years, Congress has periodically pointed a finger at the profession in the wake of a financial collapse. Those inquiries have been rather episodic and confined to a few legislators on one or two congressional subcommittees.

Needless to say, the S&L crisis caught the attention of every member of Congress. So now there are a lot more people asking, "Where were the auditors?" While there are still relatively few legislators who spend their time worrying about accounting, a lot more are sensitive to questions about the role and performance of auditors. Journal: If the S&L crisis resulted in more policymakers taking notice of the profession, does that mean its reputation in Washington isn't very positive?

Lee: Yes and no. Let's not kid ourselves. The celebrated business failures have done more to damage the profession's image in Washington-and with the public, for that matter than any other episode. The GAO reports about sloppy audits of S&Ls, hearings in the banking committees and other panels, the Keating affair. The spotlight shone on the profession with unaccustomed intensity, and we took plenty of heat as a result.

But that's not the whole story. For as much as policymakers might accuse us of being part of the problem, they also view us as part of the solution. When people are spreading blame around for an unpleasant surprise in the marketplace, sure, they push a good share in our direction. But when it comes down to making sure a surprise like that doesn't happen again, where do they turn? The accounting profession.

Members of Congress gave us plenty of heat about the S&L crisis, but what did they write into the last banking bill? An expanded role for auditors of insured depository institutions.

So, despite the tarnish of the S&L crisis, I think our reputation in Washington remains solid. Policymakers still look to us as honest brokers of information to ensure the integrity of the financial system. And I can't emphasize this enough: All accountants have a huge stake in preserving and fostering that image.

Journal: How does the profession do that if, as you say, most of Washington doesn't really pay attention to accounting and auditing issues?

Lee: We do it by constantly improving our product. I don't think our success or failure in Washington depends primarily on how well we educate Washington about our role. Fundamentally, it comes down to how useful and effective that role is.

We could set up a program to explain to every member of Congress what an audit is, what it does and what it doesn't do, how a competent audit can fail to uncover fraud, how a properly performed audit could result in a clean opinion of a company that later fails and so on. But that's not where it's at, in my view. That's too reactive, too defensive.

Journal: What's the alternative?

Lee: The alternative is to seize the initiative. So we have to accelerate our efforts to improve the usefulness of our work. Merely reacting to complaints or threats from Congress or the administration isn't going to be enough. If we get ahead of the curve and find new ways to add the greatest possible value to the financial reporting system, we won't have to react to threats from Washington. At the least, we must quicken our pace and keep up with the political process. If we lag behind it, we end up with what Washington decides to give us.

Journal: I take it you don't think the profession moves fast enough when it comes to issues involving Washington.

Lee= No, I don't. Let me give you an example. The AICPA has established a special committee on financial reporting, known as the Jenkins committee after the person who chairs it. The purpose is to take a broad look at ways to improve the financial reporting system. They are doing some extremely valuable work. But the origins of the committee, according to its own description, date back to 1988, when the profession was taking its hardest hits from Congress and the regulatory agencies over the S&L crisis.

The deadline for the Jenkins committee to issue its report is 1993. And then the tedious process of exposure, evaluation and implementation begins, adding who knows how long. From 1988 to 1993? I can tell you, that is nowhere near fast enough to satisfy the critics in Washington that inspired the creation of the Jenkins committee in the first place.

I recently looked up an article in the Journal of Accountancy I coauthored in 1983 when I was chairman of the AICPA board. The article talked about rising Washington interest in the profession, about Washington concerns over bank audits and about how the appearance of indifference on the part of the profession could stimulate further Washington interest. Here we are almost a decade later and we're still pretty much in the same boat.

Then I came across another Journal article, this one from 1972. It was written by L. William Seidman, the former chairman of the Federal Deposit Insurance Corporation. (Let me just pause here to say a word about Bill. During my 40 years in the profession, he has been more than a respected colleague and a close friend. He's also been a guiding light throughout my career.)

In 1972, Bill wrote about the deterioration of the profession's public image, its declining credibility and the need for the CPA to "acquire a new 'feel' for his place in a changed world." Well, now it's a full two decades later, and we still have that need.

Journal: Another CPA might say, "Well look, we've moved at our own pace all that time and nothing really bad has happened to us. Why should we dance to the government's tune?

Lee: I'm not suggesting that we simply dance to the government's tune. But to the extent that changes in the external environment create legitimate questions about our role, those questions will eventually be taken up in the political arena.

And we must be continually sensitive to the dynamics of that arena. In the years of my involvement with the AICPA, I have seen more and more of our issues dealt with by legislators, on both the state or federal levels. Legislatures simply won't tolerate the slow, deliberative consensus building that has characterized the profession. Journal: And if the pace doesn't pick up?

Lee: Then we won't participate in the political decision making. Down the road, that could mean the government mandates not only certain attest functions but also how they are to be carried out--and by whom.

We already see several examples of that in bills pending in Washington. If we don't want to see private sector control over accounting and auditing standards erode, we've got to get in the game. Journal: A CPA reading this in Omaha or Memphis might say you've been in Washington too long. After all, a CPA works for his clients.

Lee: I couldn't agree more. Accountants work for their clients, not the government. At the same time, it's not our job to please either one of them. Our job is to provide accurate, objective accounting and attestation. What I'm saying is, Let's figure out how to do that job better. It requires a continual reexamination of the scope and relevance of our work in light of changes in the environment.

I believe it's our obligation to design products and services that improve the financial reporting system. The profession has the technical ability, the creativity and the good intention to do that. We just have to move a little faster. If we can respond quickly to changes to enhance the usefulness of our role, we won't have to worry about complaints from clients or those coming from Washington. Journal: What would you say have been your most significant accomplishments as head of the AICPA Washington office?

Lee: We've raised the awareness in policy circles of the AICPA as a force and a resource. More specifically, I've been very pleased with the development of the staff of this office. We've brought on some superb people who will serve our mission admirably long after I've moved on. We've made good progress in improving the communications capability of the Washington office. In addition, I think we've established closer relations and improved coordination with the government affairs functions of the state societies as well as those of the largest firms.

We're also making progress in strengthening our key person contact programs so we will have the grassroots capability necessary to being heard in Washington. For that to be done, our office must succeed in focusing the profession on Washington issues important to practitioners around the country. The response of our membership on that front has been one of the most gratifying aspects of my tenure in the Washington office.

Journal: You will have fulfilled that tenure at the end of the year. Where do you go from here?

Lee: I'd like to do something that uses my unusual experience. I've been in this profession for some 40 years. I've been in management as managing partner of BDO Seidman. I've participated in the international dimension of the profession as chairman of BDO International. And I've been involved in government relations through the AICPA.

I'm just beginning to explore new options, but whatever I do next, I want it to contribute to the welfare of the profession--because the profession has made an inestimable contribution to my life.
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Title Annotation:public accountant
Publication:Journal of Accountancy
Article Type:Interview
Date:Nov 1, 1992
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Next Article:Hunnicutt to head AICPA Washington office.

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