Paul M. Clikeman - Called to Account: Financial Frauds that Shaped the Accounting Profession

Called to Account has been a wonderful addition to my graduate fraud class for several years. The students love Clikeman's presentation style, with his rich development of the characters driving the frauds. Readers gain a deep understanding of the cycle of fraud and reform that has produced the financial reporting system we see today. With the addition of the Parmalat and Satyam cases, the second edition adds another rich cycle to the story. I highly recommend this book your students will be entertained and enlightened!

Dana Hermanson, Kennesaw State University

Called to Account by Paul Clikeman is one of the all-time best auditing textbooks. Clikeman does an excellent job describing the history of the U.S. auditing profession using the major audit failures. First, he presents some narrative and discussion on the state of the audit profession and then he presents several audit failures. Students are able to see the evolution of the audit profession, and their reactions have been very favorable. Students leave the class with a clear understanding of what can happen if they mechanically perform audits and don't use professional judgment.

Douglas Zeigenfuss, Old Dominion University

This new edition takes a broader perspective on how financial frauds have shaped the public accounting profession by focusing on fraud cases around the globe. Ever entertaining and educational, the book traces the development of accounting standards and legislation put in place as a direct consequence of these epic scandals.

The new edition offers updated chapters on ZZZZ Best and Arthur Andersen, plus new chapters devoted to Parmalat, Satyam, and The Great Recession. Through stories like Barry Minkow's staged constructions sites and MiniScribe's fake inventory number generating computer program, Cook Book, students will learn that fraud is nothing new, and that financial reform is heavily influenced by politics.

With discussion questions and a useful chart showing instructors and students how each chapter illustrates the topics covered in other textbooks, Called to Account is the ideal companion for any class in auditing, advanced accounting or forensic accounting.

Paul M. Clikeman is Associate Professor of Accounting at the E. Claiborne Robins School of Business at the University of Richmond, USA.

Called to Account

Financial Frauds That Shaped the Accounting Profession

Second Edition

Paul M. Clikeman

This edition first published 2013
by Routledge
711 Third Avenue, New York, NY 10017

Simultaneously published in the UK
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

Routledge is an imprint of the Taylor & Francis Group, an informa business

2013 Taylor & Francis

The right of Paul M. Clikeman to be identified as author of this work has been asserted by him/her in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe.

First edition published by Taylor & Francis, 2009

Library of Congress Cataloging in Publication Data
Clikeman, Paul M., 1960
Called to account : financial frauds that shaped the accounting
profession / . 2nd ed.
p. cm.
Includes bibliographical references and index.
1. Accounting fraud--United States. 2. Corporations--Corrupt practices-
United States--Accounting. 3. Accounting--Standards--United States.
4. Fraud. I. Title.
HF5616.U5C575 2013
364.1630973--dc23
2012041544

ISBN: 978-0-415-63024-5 (hbk)
ISBN: 978-0-415-63025-2 (pbk)
ISBN: 978-0-203-09794-6 (ebk)

Typeset in Sabon
by Taylor & Francis Books

To my parents, Jan and Frank Clikeman

PART I
Birth of a Profession

PART II
The Profession's Principle Problem

PART III
The Savings & Loan Crisis

PART IV
The Expectation Gap

PART V
The Litigation Crisis

PART VI
Beginning of the End

PART VII
From Profession to Regulated Industry

PART VIII
The World is Flat

The inspiration for this book, like the ideas for many of my writings, came from my students. Members of the class of 2002, who spent their senior year watching Enron implode and Arthur Andersen disintegrate, asked for my opinion about the future of the public accounting profession. Many were worried about the status of their future employers and some had begun to regret majoring in Accounting. Don't worry, I tried to assure them. Enron is nothing new. There was a bigger scandal than this while you all were in grade school, a bigger scandal than that before you were born, and a bigger scandal than that before I was born. The world will always need good accountants and auditors.

Although I outlined this book in a morning, it took more than three years to write the first edition. I could never have completed it without the research help of Kevin Rouba and Adam Cram. Alex Burr provided invaluable research assistance to the second edition.

Thanks to my friend and colleague Joe Hoyle, who listened to my plans for the book and encouraged me to stop planning and start writing.

Thanks, most of all, to my wife Margaret and my children John, Kathryn, and Miles, who remind me daily that this book is not the most important thing in the world.

Double-entry bookkeeping is one of the most beautiful discoveries of the human spirit.

(Johann Wolfgang von Goethe)

Accountants and auditors are the offensive linemen of the business worldunderappreciated and seldom even noticed unless they give up a sack or get called for holding. While superstar CEOs collect huge salaries for quarterbacking their companies to victory, and Wall Street analysts earn accolades for forecasting winners and losers, accountants and auditors rarely get the credit they deserve for gathering and verifying the financial information essential to a modern economy.

The accountant's role is to provide useful information to economic decision makers. Accountants summarize millions of transactions into a few pages of financial statements, enabling managers, stockbrokers, portfolio managers, bank lending officers, bond traders, private investors, and government regulators to evaluate each company's performance.

Auditors protect decision makers from erroneous or fraudulent information. By examining samples of recorded transactions and verifying the existence of assets, auditors provide reasonable (but not absolute) assurance that the financial statements have been prepared fairly in accordance with generally accepted accounting principles.

Every day in credit markets around the globe, investors trade millions of shares based on companies' reported earnings and creditors extend billiondollar loans based on borrowers' balance sheets. Capital markets could not function efficiently without accurate financial statements prepared by accountants and verified by auditors.

The public accounting profession was born in Great Britain during the mid-1800s. The English Companies Act of 1845 required corporations to submit to an annual audit by a committee of shareholders and permitted the shareholders to hire, at company expense, outside accountants to help perform the audit. English and Scottish accountants established firms of public accountants to provide audit services. Notable among them were S.H. Price and Edwin Waterhouse, who established their famous partnership in London in 1860.