Do You Love Your Accountant? Why?

Now that you’ve gotten your 2001 taxes all taken care of (right?), it seems like an opportune moment to consider the role of accountants in American life. Lately, the profession has been something of a punching bag, and many onlookers have treated this as a new development—as though up until very recently the big accounting firms and accountants generally were revered by the culture of as the embodiment of wise integrity.

This is not exactly so. In The Go-Go Years, his very fine book on the bull market of the late 1960s, John Brooks described an informal poll taken by an accounting acquaintance in 1969. The poll asked a “group of American financial men” who would be more likely to prevail in a dispute between an auditor and his client. Most said the client would win, because, as one respondent put it, “accountants are unable to bite the hand that feeds them.” Brooks went on to argue, in effect, that accountants simply have no cachet (at least in the United States) and that as a class they are go-along-to-get-along types.

I may be oversimplifying his point, or you may just disagree with it, but there’s no question that misleading accounting, especially merger and acquisitions accounting, benefited the corporate clients of the 1960s and contributed to no small suffering among shareholders when that particular bubble burst. (To read The Go-Go Years is to experience frequent bouts of déjà vu, as when Brooks points out a root of the problem in “the financial and accounting naivete of the millions of new investors. Naivete led to a search for simplicity, and simplicity … was found in focusing attention on the bottom line. And this simplified view of business performance soon led accountants, including some of the best, to descend almost unawares from their pedestals of disinterestedness and become at times the willing accomplices of ruthless corporate managements and essentially dishonest promoters.” Sound familiar?)

What many observers have concluded more recently is that the problem with Arthur Andersen and its ilk is that they yoke accounting services to the more lucrative business of consulting. The theory is that they cut corners on the bean-counting front to protect the consulting cash cow. So, force accounting firms to get out of consulting, and the problems will recede. But this theory glosses over the point that accountants might be motivated to go easy on clients to protect their accounting businesses.

Consider another currently developing story line of possible accounting skullduggery involving KPMG in a key role as the auditor of Xerox. The Securities and Exchange Commission recently filed suit against Xerox, alleging that the company used accounting tricks to exaggerate its numbers over a period of several years. The SEC says that when a KPMG partner stood up to Xerox, the firm simply had KPMG take him off the audit; apparently Xerox had his replacement bounced when he, too, raised persnickety questions. Finally, KPMG itself was fired.

Whatever this episode says about KPMG (see Floyd Norris on that question), it speaks volumes about the amount of power that accounting firms seem to have in bullying their clients: not much.

So, why bring all this up in the context of the passing of April 15? Because it seems that rising along with citizen outrage over funky accounting has come an embrace by some citizens of some of the same tricks. In a couple of recent stories in the New York Times, David Cay Johnston has noted warnings of rising tax cheating among the wealthiest classes, up to and including the use of dodgy offshore accounts. It seems obvious that flat-out tax cheating by individuals is at least as appalling as flat-out tax cheating by corporations. But definitions of “cheating” can vary: Exploiting a loophole is different from doing something you know is illegal, even if both maneuvers seem equally repugnant to disinterested observers.

Which brings us back to the role of accountants. Having just finished your yearly tax ritual, would you say that a good accountant is one who challenges you to act in the spirit of the tax code (the spirit of the tax code being, “the government wants as much as possible”)? Or would you say a good accountant is one who knows the reality of the tax code well enough to save you money? Put another way, would you rather have an accountant who jawbones you into, for example, paying state sales taxes on all the stuff you bought from Or would you rather have one who didn’t bother you with such trifles?

I’m sure you’re an on-the-up-and-up taxpayer like me, so you don’t need some aggressive watchdog looking over your shoulder. Those companies and fat cats who engage in shifty schemes to avoid paying their fair share are simply dishonest in a way that we would never be. Either that, or they have better accountants.