One On One With James Quigley, CEO, Deloitte Touche USA
Monday, February 06, 2006
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SUSIE GHARIB: Accounting practices and ethics issues are back in the news as the trial of Enron`s two top former executives continues this week in Houston. To get a sense of how corporate America, as well as the big four accounting firms are faring these days, I talked today with Deloitte`s CEO James Quigley. He told me that American businesses have entered a new era of accountability.
JAMES QUIGLEY, CEO, DELOITTE & TOUCHE USA: This notion of the age of accountability is a hope on my part that that`s how we will one day look back on these days and judge them. And I think when we look back on the `90s, the words that most of us have come to mind are greed, entitlement and rationalization. And I`m hoping when we look back on these days, we will say this is a new age of accountability, the way businesses and business leaders have behaved.
GHARIB: Mr. Quigley, Deloitte audits hundreds of companies. You sit on the boards of many companies. What still worries you most when it comes to accountability issues?
QUIGLEY: Well, we`re just absorbing the changes that the new regulatory regime has put in place and change is hard. But we`re making real progress and so I`m very optimistic about the environment that I find today in the audit committee room. Audit committees are better informed and they are performing their roles in a much better fashion than they did before.
GHARIB: How reliable are financial reports these days?
QUIGLEY: Well, I believe we`ve made real progress by -- in reducing the risk of fraud in financial reporting. And the way that we`ve done that is through a whole broad range of components of the Sarbanes-Oxley Act, not any individual provision, but rather the whistle blowing procedures, more effective audit committees, stronger relationship between the auditor and the audit committee and the internal control reporting under Section 404. All of those contribute to a stronger financial reporting environment and the risk of fraud in financial reporting being reduced.
GHARIB: Over these last five years, yes, we have seen Congress pass laws like Sarbanes-Oxley, forcing companies to be more accountable. We`ve seen CEOs being sentenced to jail time, but do you think that business executives still think in order to be successful you have to -- it`s OK to break the rules as long as you don`t get caught?
QUIGLEY: I know that that`s an attitude that has pervaded business, but I believe the tone today is different and managers no longer believe there`s a huge reward for financial engineering and they believe success will be rewarded the old-fashioned way: producing cash flow.
GHARIB: What would you say is the most dramatic change in the accounting industry since this wave of corporate scandals?
QUIGLEY: The single biggest change today is the external reporting on internal control. We`ve talked about it for 25 years, but now it`s a part of the law and that changes very, very significantly the magnitude and the nature of the work that we perform as we complete an audit on any one of our public companies.
GHARIB: At Deloitte, what would you say is the most dramatic change that you`ve made, so that you can catch accounting gimmicks perhaps used by companies that you audit?
QUIGLEY: We`ve put in place a very, very aggressive approach to client continuance and client acceptance standards. So we evaluate risk and evaluate their financial statements to identify if there`s any indications of some fraud or some -- something that we simply can`t understand that will influence whether we`re even willing to accept the client.
GHARIB: What`s different about what you`re doing today than perhaps five, 10 years ago?
QUIGLEY: We`ve worked very, very hard on our training. We`ve worked very, very hard on actually the kinds of people that we recruit and the kinds of clients that we will accept, because to really strengthen your process it`s all about the clients. It`s about the people and it`s about the processes that you follow.
GHARIB: Do you think that investors have fully regained confidence in American business?
QUIGLEY: There was a Gallup survey that was done by the AICPA that indicated that the accounting profession`s image is back to where it was pre-scandal. I was delighted with that. However there certainly is and continues to be a degree of distrust with corporate executives, I think in part linked to all of the visibility around executive compensation.
GHARIB: So what else do you think needs to be done to restore confidence in American business?
QUIGLEY: I think we have to stay on the path we`re on. And I don`t believe it`s time to amend Sarbanes-Oxley. I believe we have to continue to absorb these changes and continue to push for the accountability and the transparency that is part of how we`re doing business today.
GHARIB: Mr. Quigley, thank you very much; we appreciate your views.
QUIGLEY: Thank you very much, Susie.
