If The President Does It, It’s Not Illegal…

I receive some amazing email.  Most does not make it to the site.  It’s either too “out there”, too personal, or was meant for my eyes only.  Everything informs me, however. Rest assured, if you want to share, I’m here and I’m discreet.  I will ask first before reprinting and I do not reprint in full unless I can verify identity.  

 “Jane ” wrote to me last night and the letter was so well documented and so detailed that I could not resist.  Perhaps it was a bit of ego on my part.  “Jane” believes I have started a movement and wonders why the revolution is not yet televised.  

I wonder too.

I am reprinting with no changes (except the correction of the date for Enron as noted in a comment) and no further comment on my part at this time.  I do not endorse the opinion of the writer, necessarily, but offer it to you for your own due diligence and consideration.  Stay tuned for a follow-up post where I will expand on these themes and offer my own take on the issues, past and current.


Dear Francine,
I guess the US audit profession just isn’t getting getting your message regarding the current audit crisis and the change that is needed at the very top levels to better protect the public interest that you have documented in detail on February 9, 2009. (FM Note: In 2002, the WSJ ripped the AICPA and accountants a new one, but that rage has subsided as “fears” of another audit firm failure have taken their place.)
This is the same leader of the audit profession who declared after Enron to the Wall Street Journal on October 8, 2001: 
“If you assume every alleged audit failure is in fact an audit failure, you still have 99.7% of the audits of the approximately 15,000 public companies which have no problem every year.” He added: “It’s not news when 1,000 airplanes land safely on a daily basis.”          

 How many more “plane crashes” do we need to have before change takes place within the leadership of audit profession to have change?

I think you have documented very clearly the following pending plane crashes facing the audit profession.  Any one of the below is a crisis in itself but in combination are a “perfect storm” that without action and leadership at the top levels could impact the audit profession for many years to come and put hundreds of thousands of jobs at risk. 
We all know that Congress and the Administration will be reviewing the role of the audit and its purpose in protecting investors as legislation moves forward to deal with the massive regulatory restructuring that will need to address economic recovery and rebuild investor confidence in the capital markets. Congress will be reviewing the below audit “plane crashes” you have so clearly documented: 

To name a just few….

It is important for readers to know that this is the same man who is now going to Congress and Treasury (after known audit scandals) and asking that the federal government to put a cap on audit litigation (now estimated at more than $140 billion) against the Big Four… Not to address the audit proactively but to sweep the litigation under the rug and keep staus quo… 

He is telling Congress that the Big Four are “too big to fail” and for “national security reasons” we need to cap litigation. 
Tell this to the millions of investors who lost their retirement savings or the US taxpayers now assuming the hundreds of billions of dollars in toxic mortgage-backed securities from New Century — once the nation’s largest sub-prime mortgage lender — now in bankruptcy and under litigation regarding the audit performed.  What about the mission of the AICPA in “protecting the public interest.” Is that best served by going to Congress and asking for litigation caps against know audit failures?
Where was the CEO of the AICPA in raising the alarms to the US audit profession last year or the year before about the pending litigation? This litigation just didn’t happen overnight? One by one they have been occuring over the past few years after Enron… But no response…   
He said after Enron in 2002 that he wanted to create a “New Accounting and Audit profession” at the Yale Club to US business media and government officials. Why is he not talking about the pending US audit crisis to his 350,000 members, the 45,000 CPA firms protecting the public or the press? Why is he not explaining to membership why he wants a cap on litigation against the Big Four? Why is he not explaing to his members his efforts to create a government receivership for one or several of the Big Four facing “catastrophic litigation”as documented in the report to Treasury he helped author? Can he support both the interests of the Big Four and the interests of the 45,000 CPA firms not offering audits?  Is he also putting them at risk and the CPA brand as the “most trusted advisor?”
Francine, I think we are all wondering in the back of our mind if the audit profession will loose its trusted status in Congress because of his lack of leadership, and conflicts of interest when re-regulation of industry occurs and regulators question the role of the independent audit in protecting investors? There is talk of nationalization of our nation’s top banks…. What about nationalization of the Big Four and the role of the independent audit?  We live in tough times and investors want answers and future protection. His lack of leadership has potentially put the US audit profession at risk and is putting the very standards of ethics and values he promises in question by not being proactive with the crisis the profession faces.  But, the AICPA Board has decided to move forward with his re-appointment for another five year term.        
“Our members collectively adhere to the highest standards of ethics and values, and being a part of the leadership team that works for them is a privilege,” said Barry Melancon, CEO of AICPA, leader of the US Audit Profession…
As Shakespeare said in Hamlet: “Something is rotten in the state of Denmark…”  Hamlet made a change. I think its time for a change in the audit profession and it starts at the top of the public face that touches the public, profession and policy makers…
The good thing is the final appointment will need to be approved by AICPA Council in the spring and every member of the 350,000 AICPA members will have an opporunity to tell their state delegates how they feel and make their voices heard before this council meeting vote. 
Like our recent US presidential election… delegates will have an opportunity to make a change and ask if the US audit and accounting profession is better off today or 15 years ago before he assumed leadership of the AICPA… 
Will the “perfect storm” hit by then and change be inevitable and transparent to all?
Thank goodness we live in a democracy and can collective express our thoughts to make things better.



Barry Melancon, CEO of the American Institute of CPAs Speech on “A New Era of Accounting” in 2002 – His pledge to create a new auditing  culture after Enron….
Press Release
A New Audit Culture

See the Press Release
A New Accounting Culture: — Address by Barry C. Melancon
President and CEO, the American Institute of CPAs
September 4, 2002
Yale Club – New York City                         



Forbes Magazine Article on Barry Melacon, CEO of the American Institute of CPAs that controls Center for Audit Quality 
NOVEMBER 25, 2002
The Man With Nine Lives 
Elizabeth MacDonald, 11.25.02 
Under fire from accounting scandals and charges of self-dealing, Barry Melancon is hanging on as head of the American Institute of Certified Public Accountants
For Barry Melancon, the 44-year-old chief executive of the accounting industry’s self-regulatory body, it’s been a terrible year. A wave of accounting scandals has damaged the AICPA’s image. On his watch, the AICPA has been accused of giving short shrift to the auditing rules it sets, which are supposed to protect investors. And under Melancon, the AICPA has set up a Web site that ignited a barrage of conflicts-of-interest charges against him.

Some 160 member accountants have signed a petition asking him to resign. BDO Seidman, the fifth-largest accounting firm, has sued the AICPA over the site, alleging Melancon is trying to enrich himself and that the AICPA is wrongfully competing with accounting firms. An AICPA member has filed an ethics violation accusing him of self-dealing. (None of the AICPA’s chiefs, including Melancon, has ever had a finding against them.) Now, Congress has yanked the AICPA’s auditing oversight duties away from it and given them to a new federal board. Some wonder how Melancon can hold on to his job.

“I think the AICPA under Melancon’s leadership has been the least effective, most backward, most obstructionist group that I encountered in my eight years running the SEC,” says Arthur Levitt, former Securities & Exchange Commission chairman. Lynn Turner, former SEC chief accountant, agrees. “If Melancon were a CEOof a company, he’d be fired by now,” says Turner, who recently received a big round of applause in a speech before 700 accountants when he called for Melancon to step down.

Part of Melancon’s problem is that he’s a lightning rod at the worst time for accountants. “Unfortunately, the actions of a few bad ones reflect negatively on all of us,” he says. But during his term, the things the AICPA let slide when the markets were at giddy heights are believed to have hurt investors. 


When the big audit failures of Enron Corp. and WorldCom Inc. came to light, the last person the American Institute of Certified Public Accountants needed as their chief executive was Barry C. Melancon. Even after the dismal performance of Arthur Andersen LLP at Enron and the collapse of the accounting firm, Melancon, 44, still argues that accountants should be allowed to solicit lucrative consulting deals from the companies they audit. Melancon insists there is no proof that Andersen’s auditors were influenced by the firm’s side deals. His stance left AICPA with little say as Congress drafted reforms.

No one should have been surprised. It was Melancon who, just before the scandals broke, led the organization to spend $4.7 million to try to persuade its 340,000 CPA members to offer a new, easier-to-obtain credential that would nonetheless certify that its holders possessed “breadth of knowledge, strategic focus, and professional rigor.” Melancon thought this would help draw in more young people to the profession, but the proposal was rejected.

Melancon, who earns $600,000 a year, signed a second five-year contract in 2000. “I am very passionate about this profession and this organization,” he says. “I am a change agent.” If accountants really want to win back trust, they should be change agents.

Photo Source




15 replies
  1. Independent Accountant
    Independent Accountant says:

    I’ve been saying things like this since 1976. Really. Barry Melacon does not represent 350,000 CPAs, but 10,000. The 10,000 partners of the four largest firms. SInce about 2002, I’ve been on a listserve, CPAs for reform. I may be the only one on that listserve to have advocated ever since it started, that CPAs drop out of the AICPA. If the AICPA goes bankrupt, some new trade organization will be formed. Paraphrasing Marc Antony in Julius Ceasar, “I come to bury the AICPA, not praise it”. The AICPA is hopelss. Drop out. Now.

  2. C College
    C College says:

    “This is the same leader of the audit profession who declared after Enron to the Wall Street Journal on October 8, 1999”

    Enron folded in late 2001. Well-documented and well-detailed, indeed.

  3. C College
    C College says:

    I guess I don’t get the point of this article. It seems “Jane” is attacking the AICPA for not providing more oversight over the accounting practice. The problem is, that’s not their role. Refer to the AICPA’s webpage:


    Their mission is to act as an advocacy group for CPAs and CPA Firms. It is the job of the SEC and PCAOB to provide oversight for the auditing profession (no comments as to how successful they’ve been). Attacking the AICPA for failing to provide adequate oversight is, I’m afraid, a misguided effort.

  4. Anonymous
    Anonymous says:

    “Hamlet made a change.”

    Hamlet directly or indirectly killed his country’s king, queen, chief advisor, his girlfriend, his girlfriend’s brother, and himself.

    Let’s be careful what kind of change we wish for.

  5. Oversight for the Better
    Oversight for the Better says:

    This is not the first time Barry Melancon ‘s behavior has been questionable. Back when the AICPA’s business project, CPA2Biz, was proposed, Melancon was marketing it to the Board and membership while holding an interest in it. It took a couple of professors publishing a paper about it to get him to quickly divest.

    Thank you Independent Accountant for telling me about CPA’s for reform! I’ve been looking for something like this and have even asked Francine, but this is the first I have heard. Could you provide a link and more info about it?

    Good point C College. I agree the AICPA is not an oversight organization. However, advocacy should include not abetting the failure of the profession which is essentially going on now. I wrote the AICPA suggesting that the organization establish a forum for members to discuss and make proposals for the furture path of the profession. I got a very positive letter back, but have seen nothing else.

  6. Chicago Accountant
    Chicago Accountant says:

    The AICPA has always been for self-regulation. It’s not just an advocacy group.

    I want to reiterate my disdain for nationalizing public accounting. Much to the dismay of socialists, government is not the answer to every problem. For every audit failure, I can show you ten failures in government. We can start with the response to Hurricane Katrina, the botched NSA surveillance that let 9/11 hijackers into the US, and the regulatory missteps that sparked the current credit crisis.

    This is frankly a bunch of hackery. Suddenly the Madoff and Stanford mess is a reason to nationalize major accounting firms. Let’s not forget that these shops were audited by tiny no-name operations. One of the firms wasn’t even registered with the AICPA! If you ask me if I feel sorry for people who invested there, the answer is yes to a degree. However, these people are partly to blame. They were blinded by their own greed and had their own missteps. The warning signs were apparent.

    Suddenly too, we want to blame the accountants of the failed banks and investment firms. Sadly, they weren’t smarter than the money managers they were auditing. They didn’t raise the red flags. They didn’t question the application of SFAS 157 in a hyperactive market. Then, when the market began to slip and valuations turned, they again didn’t question the application of SFAS 157. Yes, let the accountants be damned by the investors and the money managers and the bankers. It’s easy to blame the auditor, it’s hard to blame yourself.

    Jane can take her indignation someplace else.

  7. Tony Rezko
    Tony Rezko says:

    CCollege – The message is that the spokesperson for the AICPA is full of baloney. As noted above, the AICPA is a “self-regulating” body. So while the PCAOB and SEC are external regulators, I would say that AICPA still plays an important role.

  8. Former Big 87654 Accountant
    Former Big 87654 Accountant says:


    You may be starting a movement, and from what I read from you, you would qualify as well versed “spokesman” of any such movement.

    But what is so documented and detailed about her letter. From what I see it is a rigurgitation of alleged failures of accounting firms to properly audit an entity that subsequently went bankrupt. If we remember what we all learned in auditing 101, it is not the duty of an accounting firm to detect fraud or other defalcations should they exist and alludes to that in the auditors opinion.

    So to me, the educational focus of a CPA advocacy group such as an AICPA is to better educate the public on what the role of an auditor is.

    Nine out of every ten people on the street believe the prime role of an auditor is to detect fraud. That’s why when these case go to court, the plaintiffs generally end up winning an out of court settlement because the costs of litigation outweigh the possible damages and bad press the Big 4 firm (generally) would end up owing in the first place. They don’t win cases on their merit. That’s not to say that auditors don’t make tortious mistakes, they do, just not to the extent that the public perceives.

    Thanks for listening.

  9. Chloe
    Chloe says:

    What Can we common Poeple do about the Bailout? Nothing.. we just have to wait and see if the company comes up and develops new cars and prototypes to please the americal consumer

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