10

No one

The F.A.S.B., while causing frustrations, has made several positive actions which tend to serve towards the cause of consistency and comparability in financial reporting. doubts the need for continuing efforts towards this goal, but I feel the F.A.S.B. is proceeding, maybe slowly, in the best direction.

To fail in the efforts will require, beyond a doubt, federal intervention into accounting policy decision making.

SUMMARY

Again I would like to commend the subcommittee and staff for its exhaustive study of the accounting establishment and for bringing to light many of the problems facing our profession. It is my hope that all parties involved can go forward from this staff study and begin to address these problems and find mutually satisfactory solutions.

The reactions to the study are already causing some much needed sensitivity.

Rather than any new legislation, the A.I.C.P.A. and the F.A.S.B. should become more responsive to their structural problems and develop procedures to correct them. The S.E.C. should take whatever steps necessary to restore the public's confidence in corporate financial reporting, but these steps should be taken in "partnership" with the A.I.C.P.A. and the

F.A.S.B.

Maybe there needs to be a limitation of the services

provided by C.P.A. firms to their audit clients. I do feel that some services and the extent to which they are provided can cause a deterioration of the public's view of independence of the Executive recruiting by some firms, seems to me, to be incompatible with the scope of services an accounting firm

auditor.

Senator METCALF. Thank you very much.

I am going to come back to some possible conflicts of interests that you have mentioned when auditors recruit executives, and so forth, but I want to hear from the other witnesses, too.

Mr. Elliott, are you next?

Mr. ELLIOTT. I assume so, alphabetically anyway.

Senator METCALF. This is the way you are on my list.

TESTIMONY OF NORMAN J. ELLIOTT, C.P.A., OF NORMAN J. ELLIOTT & CO., NEW YORK, N.Y.

Mr. ELLIOTT. Thank you.

I am happy to be here in a sense and sad in another sense. I was very reluctant last fall to write a letter explaining some of my experiences on displacement, but I did so and it was received by your committee and considered and included in the staff study. Subsequently, I was invited to testify when Mr. Chesson spoke to me.

I said:

Mr. Chesson, I am a lawyer as well as a C.P.A. I know something about the rules of evidence and the things I know I couldn't prove in a court. Do you want to hear the things I know that I can't prove in court?

He said:

The purpose of these hearings is to learn what people who have been out there in the profession think they know and have experienced.

That is why I am here now.

Senator METCALF. Mr. Chesson is a lawyer and most of us around here on this committee and in the Senate are lawyers. This is not an adversarial or a court proceeding.

Mr. ELLIOTT. I appreciate that, but I have a natural tendency to stew over things that I know and can't prove. This has been going on for many years.

First, let me state my qualifications as a qualified reporting witness. I have been in the public accounting profession for more than 40 years. During the last half of those 40 years, I have been active in professional society work. In other words, I have been involved in the activities of the New York State Society of Certified Public Accountants, having served as an officer, director, or a member of the executive committee, a member of many technical committees, chairman of some, a lecturer on technical subjects to the membership, and assorted other special assignments, including the assignment to help restructure the society itself when it outgrew its old form.

In addition, to a lesser extent, I have been active in the American Institute of Certified Public Accountants. I was invited many years ago to establish a department of management controls and information in the Journal of Accountancy, which was to be a section or department commenting on management services when management service by accoutants were not so well known.

I was qualified, because I had already engaged in that kind of activity for many years. I had a little partially developed engineering background before I went into accounting. I found it fascinating, and I maintained that editorship for 3 or 4 years. I think my involvement

I was a member of 1 of the governing mnci a te my State society 10minted he took so long is because T always had a few more w the maverick didn't get a of nominees to an exact

I spent 3 years in the y say. I also was accomte! Society and the Ameran the society trial carts member of a panel of the 20 institute. I have per vast on In addition. Is 700 LITE to the bar of the State or fe trict Court. Sonthem Cam Circuit Court of Access m Generally steading fis life. So I have been iden body in this room would n frustration.

I would like to sin in submitted a written Harement To sum up, let me fate it. of Certified Public Arts fession as a whole. I wonster i group which I tall the poder n L. The reason I demalcret this ter your staff study time wx. called, "The Instine Restore sponding about. Ther setur ne boter a defend this group with an A

that. I started to lang

They say, "We disarme viri me my another. Therefore, we 1 07 1 TO

agree. They do compete-mees" ir tize

as control policy is conceret int thang be

profession, they run the astrine und her to

Their motto apparent sź w we re J I Se with their staff-from Mr. Cison town Funeral foetal 5.TEwall. Do not let the miscelaneous memerang meton g don't let them ruffle us: man tear long and m tain our position. That is a mence71. ¤ ¤ ̈ ƒ›

197onments to the

Likewise, since they star FASB, I would say the FASE and if the same I En D Saying that the FASB has done a bad pc. I un ne yng that the people on the FASB are totally row, menceries and insensitive to the needs of industry, other than the are national and international corporations who happen to be put

Oh, yes, they will concern essere to Be a large private company if it is big enough and farfug mong to represent an in

is setting the way they will manage their engagements with their clients.

Their pronouncements are admirable and well thought out. Very few of them are of any earthly use in presenting information and reporting to a smaller business. Nevertheless, to make sure that there is no dissenting voice from us-call us the mass, the rest of the profession who they look upon with a certain amount of civility, but not much respect, whose opinions they rarely solicit and, in fact, would like not to hear they feel that they want to be sure that there is no dissenting voice so they even put through a rule of ethics which the American Institute adopted by most, if not all, the State societies which says that if a member should report on an engagement in a manner inconsistent with the pronouncements of the FASB, this is a violation of the rules of ethics and makes that party subject to punishment-in short, thought control.

Yes, we can say that we can think of a better way and expand at great length, but we must recite the litany of a thought control process and say why we disagree and why the presentation is that way. By the time you get through, it is an exercise in nonsense. You might as well read "Alice in Wonderland" when you do something like that: but this is an ethical rule imposed on this profession, and it is the sort of thing for which a C.P.A. can be punished if he fails to follow it. I might say that the larger firms, the big eight technically, seem to be immune to discipline. In all my years of observation I have never seen the case of a firm being brought to bar, being brought to book. Once in awhile there is a lawsuit and there have been many of them in more recent years when some little guy underneath is thrown to the wolves, a senior accountant, a management accountant. They get indicted and suspended, and the firm rolls on.

It is just like the fact of a large corporation committing a crime of some kind, a fine being levied on the corporation and some one person being slapped on the wrist and the corporation rolls right on.

These large firms are nothing more or less in accounting than conglomerates; they might as well be Gulf + Western, as far as I am concerned. They might as well be Walter Kidde & Co.; they operate that way.

How do they maintain the control with such a minority of members! In the first place, by their economic power and their ability to find jobs-and this placement service of theirs helps a lot-they have a mutuality of interest with the staff, and the staff of the institute knows where their bread is buttered. Naturally, they respond very graciously to the desires of the in group.

If someone not a member of the in group wants to raise questions or ask for information, he is treated with ill-concealed uncivility. If he should raise a point, as I have done repeatedly on the floor of the governing council, he is treated as a criminal because if you disagree. this isn't a matter of open discussion; this is a matter of violating the party line.

I have been on the floor of the governing council attempting to question, for instance, the initial organization of the FASB. I did manage to raise a furor sufficient to the point where orchestrated pro