The Enron effect

Since the energy company,s collapse, CFOs are under the microscope along with auditors.

In the wake of Enron’s spectacular flameout, chief financial officers are taking a hard look at their appointed bean counters. They,re also rethinking their own roles. Auditors have taken on the mysterious allure of the dangerous. CFOs, many of them former accountants, are finding their reputations on the line, too.

Of the CFOs surveyed by Institutional Investor, 57.3 percent believe investors now see the CFO job as more crucial. But an unhappy 25.8 percent feel they have fallen in public esteem.

At an overwhelming number of companies, 93.3 percent, the board selects companies, auditors. But in a slight majority of cases, management determines auditors, fees. That creates the potential for undue influence.

Although 54.8 percent of CFOs surveyed say their companies use auditors for consulting assignments, among those that don,t, 67.4 percent say they wouldn,t consider doing so because it would be a real or potential conflict of interest.

Among the 39.3 percent of companies that have risk management officers, 94.3 percent created the position years before Enron hit the skids. But only 2.9 percent of them report to the board.

For all the profession’s bad publicity lately, CFOs stand by their auditors. More than 85 percent see no reason to rotate auditors regularly, like crops. A slightly smaller number of the CFOs polled, 84.3 percent, say their companies have not changed accounting firms in the past three years.

Only 4.8 percent of CFOs think it a good idea to have an independent agency, such as a stock exchange, hire and pay auditors. Another 4.8 percent believe it would imply management dishonesty. An overwhelming 90.5 percent reject the idea because it would create an unneeded layer of bureaucracy.

In the wake of the Enron Corp. bankruptcy and similar events, do you believe that the perception of CFOs has changed among the investing public?

Yes, they think the job is more crucial 57.3%

Yes, they think more of most CFOs 0.0

Yes, they think less of most CFOs 25.8

No change 16.9

In the wake of the Enron bankruptcy, has your company changed your role?

Yes, my authority over financial decisions has been strengthened 6.7%

Yes, my authority over financial decisions has been reduced 1.1

No, there has been no change 92.1

Does your company have a risk management officer?

Yes 39.3%

No 60.7

If yes, when was this position created?

Within the past 12 months 5.7%

One to three years ago 31.4

Four to six years ago 22.9

Seven to ten years ago 14.3

More than ten years ago 25.7

If yes, to whom does this officer report?

To the chief executive officer 26.5%

To the chief financial officer 70.6%

To the board 2.9

Who selects your company’s external auditor?

The board of directors 37.1%

The audit committee of the board 56.2

The CEO 2.2

The chief operating officer 1.1

The CFO 3.4

Other 0.0

Who determines external audit fees?

The board 7.9%

The audit committee 41.6

The CEO 2.2

The COO 0.0

The CFO 48.3

Does your company employ its external audit firm for consulting projects?

Yes 54.8%

No 45.2

If no, would you consider using the consulting arm of your audit firm?

Yes, they already know the company well 4.7%

Yes, if it fits their area of expertise 25.6

No, we have management consultants 2.3

No, it is a potential conflict of interest 58.1

No, it is a real conflict of interest 9.3

Should companies replace their external auditors periodically?

Yes, approximately every three years 0.0%

Yes, approximately every five years 4.8

Yes, approximately every seven years 9.5

No, as long as their performance is satisfactory 85.7

Have you replaced your auditor?

Yes, in the past 12 months 8.4%

Yes, in the past three years 7.2

No 84.3

Should an independent agency, like the stock exchange, charge companies a fee and pay external auditors?

Yes, it would make auditors more independent 4.8%

No, it’s an unneeded layer of bureaucracy 90.5

No, it implies dishonesty on the part of management 4.8

The results of CFO Forum are based on quarterly surveys of a universe of 1,600 chief financial officers. Because of rounding, responses may not total 100 percent.

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