JURIST Guest Columnist Joseph Marren of KStone Partners LLC says that the American Institute of Certified Public Accountants must seriously reconsider its decision to designate the Federal Accounting Standards Advisory Board as the "generally accepted accounting principles" standards setter for the federal government...
ustice John Paul Stevens, in his dissent in Citizens United v. Federal Election Commission
, focused on corruption and incumbency protection:
It is fair to say that "[t]he Framers were obsessed with corruption," which they understood to encompass the dependency of public officials on private interests. They discussed corruption "more often in the Constitutional Convention than factions, violence and instability." When they brought our constitutional order into being, the Framers had their minds trained on a threat to republican self-government ... "The importance of the governmental interest in preventing [corruption through the creation of political debts] has never been doubted" ... Today's opinion provides no clear rationale for being so dismissive of Congress, but the prior individual opinions on which it relies have offered one: the incentives of the legislators who passed [the Bipartisan Campaign Reform Act of 2002 [PDF]]. Section 203, our colleagues have suggested, may be little more than "an incumbency protection plan," ... a disreputable attempt at legislative self-dealing rather than an earnest effort to facilitate First Amendment values and safeguard the legitimacy of our political system.
The above discussion is the backdrop for Part IV of my ongoing series
on the Statement and Account Clause
, which examines the role that the American Institute of Certified Public Accountants (AICPA) has played in the massive accounting fraud that has been perpetrated on the American citizenry. One could argue that there could be no greater attempt by Congress at diminishing its own accountability, degrading the competitiveness of the electoral process and protecting incumbents than to have the accounting mess that it created be effectively blessed by the country's leading independent accounting entity.
In every financial fraud or reporting failure by public traded companies in the private sector, the Securities and Exchange Commission (SEC) always asks the following question: "Where were the accountants?" All too often they find accountants and outside auditors who, at best, closed their eyes to financial problems and, in some cases, were complicit. It is in this context that one has to take a hard look at AICPA's role in designating the Federal Accounting Standards Advisory Board (FASAB) as the "generally accepted accounting principles" (GAAP) standards setter for the federal government. It is important to remember that the sponsors of FASAB (the US secretary of the treasury, the director of the US Office of Management and Budget and the comptroller general) deemed approval by AICPA critical. AICPA approval was viewed as "the good housekeeping seal of approval" and had real meaning within the private sector.
The ethical principles underlying the AICPA's Code of Professional Conduct (CPC) include:
- The Public Interest Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to the profession.
- Integrity To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.
- Objectivity and Independence A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.
An argument can be made that AICPA has violated both the US Constitution and its own ethical principles in recognizing FASAB as the GAAP standards setter for the federal government under Rule 203 of the CPC. One must ask, has AICPA aided and abetted in the publication of financial results that do not comply with the Constitution? Has AICPA designated an unconstitutional entity, FASAB, as the GAAP standard setter for the federal government? What public interest has been served by blessing a rule-making body that assists in the publication of misleading and incomplete financial results? What culpability does AICPA have for the publication of financial statements that do not meet the requirements of the Constitution? What does it say about AICPA's integrity that they have arguably assisted in misleading the citizens of the US with respect to the nation's financial disposition? Given the public disputes at FASAB between public official representatives and "independent" directors regarding proper accounting for the nation's social insurance obligations, how can AICPA continue to designate FASAB as the GAAP standards setter? Is there anything that could lead AICPA to withdraw its designation? How can one possibly debate whether FASAB is an independent board? It cannot be so by law and the facts that are publicly documented show that it has never acted in an independent manner.
It is important to make one last observation regarding the role that AICPA will likely play in the not-too-distant-future. When the nation's finances finally go "off the cliff" and treasury yields skyrocket, Congress will do what it does best: search for someone or something to blame besides itself. It is fairly predictable that politicians will find that AICPA fills that role perfectly. It would seem to be an appropriate time for AICPA members to take a hard look at their leadership's decision to continue to designate FASAB as the GAAP standards setter for the federal government.
Joseph Marren is the President and Chief Executive Officer of KStone Partners, an SEC-registered investment advisor that specializes in managing funds of hedge funds. Previously he was Head of Business Development in the mergers and acquisitions departments at several firms including Sagent Advisors, Citigroup, Credit-Suisse and DLJ. He is the author of two books on mergers and acquisitions, taught at New York University Stern School of Business and is a graduate of Fordham University School of Law.
Suggested citation: Joseph Marren, The Statement and Account Clause and Citizens United: Part IV, JURIST - Sidebar, Mar. 13, 2013, http://jurist.org/sidebar/2013/03/joseph-marren-citizens-part4.php
This article was prepared for publication by Stephen Krug, an associate editor for JURIST's professional commentary service. Please direct any questions or comments to him at firstname.lastname@example.org