The accounting-auditing sector has yet to recover from the blow to its credibility with the Enron and WorldCom scandals a few years ago. In the former’s case, Arthur Andersen auditors – the very people who should have been protecting investors from irregularities by Enron’s accountants – even destroyed documents so that the authorities would not find them. The result was that the auditing company was dissolved, the profession lost its right of self-regulation and came under strict supervision in the US with the Sarbanes-Oxley Act of 2002. Other governments took similar measures to protect investors. It is also understood that the adoption of single accounting standards across the world should not proceed, as company activities transcend the jurisdiction of national auditing authorities. These were the issues Kathimerini discussed with Deloitte Touche Tomatsu CEO William G. Parett. His company is one of the four greatest international groups in accounting, tax, auditing and advisory services. Its annual revenue is $16.5 billion, 45 percent of which originates from Europe, a third from the US and the rest from Asia-Pacific and Latin America. Parett visited Athens to address the annual meeting of the firm’s officials in Europe, held this time in Greece. The accounting and auditing profession was dealt a bad blow by the Enron scandal and other accounting cases in recent years, which shocked investors across the globe. What happened and how great was the damage? The 1990s were a tough decade for all businesses, including professions we are directly involved in, especially accounting and, to an extent, tax services, due to the technology bubble, the dotcoms, when many people would buy and sell stocks according to projected revenues – never the right way to make such decisions. The global business community suffered the impact of this exaggeration and the accounting profession was particularly hurt. What changes did you make in the aftermath of the Enron scandal? After Enron and the related scandals of that time, we took a look at them and did an internal review of our organization to see if there is anything we needed to change to do a better job in response to what we learned from the Enron, WorldCom and other cases. I would say that fundamentally our systems were sound. We didn’t need to modify anything in any significant way. Having said that, we did make some changes. The first thing we did was to appoint a chief ethics officer, the second was that we reinforced all of our internal policies and procedures. The third was to communicate to all of our people the importance of following and complying with the law. One of the major issues in the Enron situation was the destruction of all papers, an ethical failure on the part of Andersen. I am happy to say that, while we are a firm with 120,000 people around the world and 100,000 clients, and of course occasionally, we make a mistake, the thing we try to avoid is a failure in ethics or principle and we were good to avoid this. What was the impact of this hardship on supervision in your profession? There is more regulation for sure; in fact, we have gone from a self-regulated business to a regulated one in most countries. And one of the most prominent regulators is the Public Company Accounting Oversight Board (PCAOB) in the US. It is the most prominent because of the size of the capital markets and the economic system of the US. Of course, since American businesses are so global and European and Asian companies are doing business in America as well, it has an impact on everybody. At the same time, I want to be clear that while we don’t particularly like being regulated, we of course understand the benefits. And the regulators for sure are helping to restore trust in our profession. There is really nothing more important for us, both in the US and Europe, and the Asia-Pacific as well. I think we have begun to do that, we are making progress but we have a long way to go. The expectations of people, of the investing public, are much higher today than five, 10, 15 years ago, so there is a continuous improvement process. The PCAOB has very stringent rules and they are primarily directed at protecting investors in the American capital market system, therefore, it does impact companies that are global but registered in the US. So even European companies that have American Depository Receipts (ADRs) are affected. There are a number of issues around privacy and territorial ones that everyone must deal with. But one thing I must say is that regulators work together in the global arena to overcome some of the inherent conflicts among the different governmental systems around the world. We are moving to a much more global regulatory system as well, and in different parts of the world, in Canada, in Japan, even here in Europe with the EU and the Public Interest Oversight Board (PIOB), there are different forms of organizations being developed which have similar responsibilities to the PCAOB, thus building a global network of regulators. Besides coordinated regulation at a global level, a single accounting system is required. What is the difference between the US GAAP (rule-based) and the IFRS (principle-based) systems? What is the role of ethics when implementing an accounting system? You are correct that some accounting systems around the world, not just in the US, are very rule-based today, more so than 20-30 years ago in the US. And that the IFRS are certainly far more principle-based. Fundamentally, I believe that principle-based systems are better. There are some real challenges from an auditing standpoint when you have accounting rules and regulations that require fair value accounting, because we all know that of course market-value accounting is only as good as the day you do it, because the market value changes the very next day. So the problem we are experiencing in the business community is the demand that the business community must create financial statements that have more current value or fair value; but fair value accounting changes every day. There is the impression that the US is reluctant to adopt international accounting standards (IAS), insisting on US GAAP, secure in their dominance of the capital market. How inclined is it to compromising? There has been an apparent reluctance from some of the countries toward a principle-based approach. There are many different systems around the world, so I think everybody is trying to establish a global set of principles which are even more principle-based than they were in the past. I believe the US rule-makers have expressed a directional interest in really converging. And we, of course, as a firm very much support convergence, because the economy is global and we want a good system, it doesn’t matter which. How far are we from establishing a global accounting system? It’s hard to predict. Maybe it’s five years away. It will not happen this year or next.