Interview Primer
With the deluge of interviews that are coming the way of Imperial students this term, here is a topic that might allow you to waffle on endlessly. Because, as I found out so cruelly, 'commercial awareness' is apparently a much sought after quality. So here goes the tale of WorldCom and Enron, aka ‘The Accounting Scandals’. I will attempt (somewhat feebly) to throw my two pennies worth on this topical err... topic.
WorldCom, Enron, Xerox and friends have all played a major role in the accounting scandals that has shocked and gripped the business world. But what's the excitement all about? Put simply, WorldCom stated cost as anything but cost, meaning profit was well inflated[1]. Enron was slightly more subtle, hiding its losses and debt in partner companies that it conveniently created. When they were exposed, both filed for Chapter 11[2] protection, but not before Enron executives wrote a cool $55m cheque to themselves as bonus.
The aftermath brought finger pointing and knee jerk reactions all round. UK regulators (ICAEW) champion UK accountancy as flawless, although that didn't stop Patricia Hewitt, Secretary of State for Trade & Industry from overreacting by calling for drastic changes to regulations in accounting. Measures like auditor rotation, higher accountability of non-executive directors and changing lead partners with clients every 5 years cropped up. It wasn’t a particular hit with the Big 5, who had by now shrunk to the Big 4, as Andersen's role in the Enron conspiracy had ended their existence. Rounds of heated debate later saw the Higg's report this Tuesday.
The report shed new light on corporate governance and the auditor's role in it. Up to now, Chief Executives are allowed to be Chairman, and non-executive directors on the board, responsible for keeping an eye on the management, are nothing more than Christmas decorations. These are set to change, with boardrooms set to be more accountable, tighter restrictions on directors and greater diversity to assure independence and integrity. As for the auditors, the report suggests that the Company Audit Committee will be charged with making sure that management and auditors will have a more independent and objective relationship.
All in all then, global accounting is still to recover its reputation as a profession. If you are even reading up to this point though, perhaps you really should really consider a career in accounting seriously.
