Accounting integrity needs a big boost

First came the questions: How could Enron Corp. get away for so long with Arthur Andersen's accounting gymnastics that ultimately led to the largest bankruptcy in U.S. history?

Then came the demands: Make new rules. Pass new laws. Make sure this can never happen again.

Last week, the U.S. House responded to demands for legislative action by passing a watered-down bill to tighten oversight of the accounting industry. Instead of a tough set of rules, the House bill -- which received a bipartisan 334-90 vote -- continues to rely on self-policing by an industry that has managed to stave off tough rules and regulations, thanks to powerful lobbying clout in Washington.

As more and more information about accounting practices at major corporations like Enron have come to light in recent months, it has become more and more clear that regulations that possibly could have averted Enron's collapse were repeatedly rebuffed by Congress, even when the Securities and Exchange Commission, for example, was pushing safeguards that failed to pass muster with accounting lobbyists.

Repeatedly in the months and years before Enron's house of cards collapsed, the SEC recommended reporting and accountability requirements that might have given investors a clearer picture of what was going on. But the political power of the big accounting firms was successful in keeping legislation and watchdog regulations at bay.

Most Americans, of course, do not go about their daily lives with thoughts of how to disguise millions or billions of dollars of debt on company reports. Finding a 50-cent error in balancing a checking account is often the biggest financial challenge they face on a regular basis.

But Americans have a sense of right and wrong. And when it comes to events like the ones involving Enron and Arthur Andersen, the average Joes and Janes wonder about the integrity of the important, well-paid men and women who are entrusted with running large businesses.

On the one hand, it is proper to question the ethics of any large, powerful and important professional group like accounting companies. While the ethical codes of the accounting industry in no way condone the questionable actions that have been exposed in the Enron debacle, there also appears to be a lack of ethical sanctions.

On a more personal level, there are moral issues as well. Deception and lying are actions that often produce unpleasant consequences in our personal lives, and everyone understands the pitfalls of deception and lying in business. Generally, moral breakdowns result in personal failure and quickly destroy reputations.

The expectation by a large majority of U.S. House members that the accounting industry can police itself places an enormous burden on accounting firms to demonstrate their ability to do so. Put another way, honest accountants have a pressing obligation to root out the cheats and frauds so that the confidence of the public at large can be shored up.