Search the Internet          Tips  Sites: Finance, Investment

Enron sparks soul-searching at accounting schools

The Enron scandal that's already rocked Wall Street and the accounting profession is now causing the ivory towers of academia to sway.

The alleged questionable accounting that spurred Enron Corp's collapse and landed its auditor Andersen in the midst of a huge controversy is also leading to a period of soul-searching at the universities that train number crunchers.

Professors say they have already started to adjust their courses to address multiple questions about accounting practices and ethics issues arising from Enron's downfall. The changes are certain to accelerate when regulators and the accounting profession introduce much-anticipated reforms.

"There is going to be a change," said Michael Granof, professor of accounting at the University of Texas at Austin. "Suddenly accounting professors are aware that accounting is no longer accurate and reliable."

"Accounting professors can no longer get away with just talking about the current model as being the only model without recognising its flaws. You can't get away with that anymore- the students are going to be so cynical," said Granof.

The links between the classroom and the Enron scandal are more than academic.

Robert Jaedicke, professor emeritus of accounting at Stanford University, served on Enron's board at the time of its collapse and William C Powers, Jr, dean of the University of Texas School of Law has since joined.

Moreover, prominent accounting firms, including Andersen, recruit heavily from accounting programs and business schools, often contributing money and endowing professorships.

IMMEDIATE EFFECTS

Many accounting teachers are already using Enron as an example of improper accounting practices and of ethical dilemmas.

"I can't avoid, nor do I want to, many illustrations and examples (from the Enron scandal). There's so many reporting issues involved with Enron that I'm just naturally incorporating these illustrations through the semester," said Paul R Brown, chair of the accounting department at New York University's Stern School of Business.

The most immediate effects are being felt in the teaching of financial statement analysis and ethics, said professors.

"Particularly for financial statement analysis it's very important," said John Hand, professor of accounting at the University of North Carolina at Chapel Hill.

Hand said accounting students will be taught "a greater skepticism to dig down much further into financial statements to see what is really going on and scrutinise the disclosures with a more skeptical eye than in the past."

The study of accounting ethics, somewhat controversial within the field, will also be brought to the fore.

"There's going to be a dominating discussion -- we've been so sensitised on it that there's no doubt there's going to be discussions of ethics especially in the beginning courses," said Granof.

Ultimately the scandal may help to create an environment in which a more ethical accounting culture will thrive and accountants are more comfortable raising problems, experts say.

"The situation is going to heighten the willingness of partners, managers and even the senior executives at accounting firms to respond very quickly and thoroughly when ethical questions are raised," Hand said.

However, several professors said it is difficult to teach ethics in a profession where so much depends on how individual accountants behave in real-life situations.

SKEPTICISM AMONG STUDENTS

Professors say they hope the growing cynicism about accounting translates into a healthy, skeptical attitude that students carry with them when they enter the profession.

"(Students used to) come into an accounting course thinking that accounting is accurate. My job was to make them skeptical of that. Now, my problem is going to be the students are going to come in so cynical of accounting, I'm going to have to convince them that there is some value to it," said UT Austin's Granof.

Ray Ball, professor of accounting at University of Chicago's Graduate School of Business, said that his business students, many of whom are preparing for careers as analysts and investors, are raising fundamental questions about the quality of accounting.

"They're asking a lot of questions like, 'How do I know whether I can rely on an accounting firm's reputation?' and 'How do I know whether the numbers in the financial statements are reliable or not?' They realise that they rely upon this information and they have to know how its prepared and what its strength and weaknesses are," said Ball.

Professors are divided when asked about the long-term effects of the scandal on the accounting profession.

Many noted a "silver lining" around the dark cloud created by Enron and Andersen's problems -- accounting has become newsworthy, and accuracy and independence is now understood to be vastly important. New demand for proper accounting should negate the fall out from the scandal, they say.

Still, others are concerned that the scandal has tainted the reputation of the accounting profession. Recent polls show the status of accountants falling in the public mind as well as within their own profession.

"You're going to see a decline in students wanting to enter the profession," Granof predicted. "Going into accounting has always been thought of as something different than going into finance or marketing. That's gone now. The profession has been so discredited that students will discouraged from going into it.

"That's ironic, because the need for accountants is going to increase."

YOU MAY ALSO WANT TO READ:
The Enron Saga
The Rediff Budget Special
Run-Up To The Budget