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Taking Account: Jim Copeland

Ray Suarez talks with Deloitte and Touche CEO Jim Copeland about the impact the Enron debacle has had on the accounting industry.

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  • RAY SUAREZ:

    A key issue in the collapse of Enron has been the role of its accounting firm, Arthur Andersen. Recently the five biggest accounting companies, including Andersen, announced they would address the conflict of interest issue and change certain industry practices. Deloitte and Touche, of the so- called "big five," was the last to sign on. Its CEO Jim Copeland joins me now.

  • RAY SUAREZ:

    Let's begin by getting an idea of what structural changes have been proposed and what you're agreeing to do.

    JIM COPELAND, CEO, Deloitte & Touche: Ray, actually, we decided to separate Deloitte Consulting. We're going to put a plan of separation in place that should be completed around the end of May, and then we'll move as quickly as we can to execute that plan after that, at that point.

  • RAY SUAREZ:

    Now, you're at the top of the pyramid of both companies at the moment. When that's spun off, that new company will have a whole separate management structure?

  • JIM COPELAND:

    Yeah, actually, today Deloitte consulting has its own separate board of directors and separate management, but we do meet at the top at Deloitte Touche Tohmatsu, our global organization.

  • RAY SUAREZ:

    So why is this considered a good idea? Why was it recommended to the big five?

  • JIM COPELAND:

    Well, we don't think it's a good idea. We believe that the entire scope of services, issue related to auditor independence at least for our firm, is really an issue of appearance rather than a real independence issue. But the market has moved, and the market believes that there will be regulations that will require separation of accounting and auditing services for the same client. And so we can no longer allow our clients to be in a dilemma of having to choose between the best auditing firm in the world and the best consulting firm in the world. We want them to be able to choose the best of both worlds.

  • RAY SUAREZ:

    Now, you mention that that's, in your view, an appearance question.

  • JIM COPELAND:

    Yes.

  • RAY SUAREZ:

    A lot has been written in recent weeks about people jumping between the companies, after being supposedly a rigorous and disinterested observer of a company, then ending up a staff member of that company; of companies spending large amounts of money, both getting their books checked, and then spending money with the same company to get advice on taxes and running its business. Is this more than appearance?

  • JIM COPELAND:

    I think people confuse independence with integrity and ethics. If you… If you think about the independence of an auditing firm, we're only independent by definition of the Securities and Exchange Commission. We are dependent on our… We are financially dependent on our clients. We're paid by our clients to do auditing work or to do a number of other things. So we are not independent… Independent except by the definition of the commission. So it's always seemed a strange argument to me that people would wonder why we should be paid for consulting services and at the same time not have the same questions about being paid for our auditing services. The fact is that independence and integrity are really two different issues, and if a professional is faced with a decision to do the right thing, even when it costs them, that's the price of being a professional. That's what being a professional is all about is doing the right thing, even when there are powerful influences to do something else.

  • RAY SUAREZ:

    Now, you've mentioned that, for business reasons, you'd rather not take this step. Is this just part of the fallout from Enron and its problems?

  • JIM COPELAND:

    It appears that it is. And the unfortunate part about it is that, in some ways, it will make it more difficult to do high-quality audits rather than easier.

  • RAY SUAREZ:

    If you follow the stock markets, there seem to be a lot of other companies now who are restating profits for 2001, who are reopening examinations of their books. Have you had clients contact Deloitte Touche and say, "Let's take another look at 2001"?

  • JIM COPELAND:

    I would say that all of our audit committees are looking to us in this environment, saying, you know, "What do we need to do to be sure that what happened at Enron doesn't happen in our shop?" And that's the right question to be asking. You know, are the controls in place, are we having the right kind of communications, is the right kind of information being brought forward? So this is, I think… Actually, a positive aftermath of Enron is that audit committees are taking their jobs extraordinarily seriously right now and… As are auditing firms.

  • RAY SUAREZ:

    One of the big topics of discussion already in the hearings, and something that may continue to be so, are these various side businesses that were begun by Enron. Is this a common practice and are your auditors running across it in many other businesses?

  • JIM COPELAND:

    Well, special purpose entities have been used by thousands of companies for many years. They have a legitimate purpose when they're properly constructed. They're intended to make the use of a company's capital more efficient and effective, and they can be entirely legitimate. On the other hand, it's like anything else: If you abuse the idea, then you get an awfully bad result, and that seems to have been at least part of what happened at Enron.

  • RAY SUAREZ:

    Well, from what you've read, what you've followed with that extra eye of a professional, have you seen some chapters in this story that have just, you know, put you off your cornflakes, made you blanch? Made you wonder what was going on over there?

  • JIM COPELAND:

    Obviously, this is a terrible tragedy. I mean, people have lost their life savings. They have… Thousands of people out of work, and I'll have to say that hundreds of thousands of people in our profession have suffered collateral damage to their reputation as a result of what's happened at Enron.

  • RAY SUAREZ:

    Well, describe that collateral damage for me.

  • JIM COPELAND:

    Well, sure. I mean, I've always been proud of what I do and I believe all of our people are proud of what we do and, in times past, I would say that people in our profession have been highly respected. There's some tarnish now on that, as a result of Enron and what's happened there, and that's not really fair. I mean, these people are going to work every day, working hard — 300,000 of them in the United States doing between 15,000 and 17,000 audits a year that are never challenged, that aren't restated, there aren't problems with them– and yet these people are being tarred, to some extent, with the same brush.

  • RAY SUAREZ:

    Well, with the new atmosphere of second glance and higher scrutiny, might there be some other Enrons out there?

  • JIM COPELAND:

    I would be surprised if we have anything in the pipeline, so to speak, of the size and scale and scope of Enron. I would really be surprised at that. But I do believe that there is a danger that in the process of trying to create reform that we address only some of the cosmetic or perception issues that are out there and convince ourselves that we have… That we've really had meaningful reform. And then there's some risk that the reputation of the capital market's even further damaged by the next incident– probably not on the size and scale of Enron. At least, I hope not.

  • RAY SUAREZ:

    Jim Copeland of Deloitte Touche. Thanks a lot for being with us.

  • JIM COPELAND:

    My pleasure.

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