Doshier, Pickens, and Francis, P.C.

OFFICE NEWS:

The following article was published in the West Texan, a West Texas A&M periodical.

Ethical behavior is essential for a successful business.

As I read the recent barrage of articles and e-mails concerning the revelation of fiscal shenanigans by several publicly traded companies, my mind wanders back to my college days. It was the Fall semester of my fourth-year as an accounting student at West Texas State University. I was in the thick of the education for my major. If you were an accounting or finance major, you may join me in cringing at some of the memories. You remember, Intermediate Accounting as presented by Mr. Leon Trekel. Ah, aren’t the memories sweet? Ughh! (No offense Leon). Ironically, it was not Trekel’s class alone that taught me the truth I hope to relate in this column but rather another class I took during that Fall semester – Federal Tax Accounting. In that particular class, the professor allowed his students to come to his office and browse over old exams as a means of “polishing up” in preparation for an exam. Well, it was proving to be a demanding semester. I was taking a fairly heavy class load, working a part-time job, and, I confess, wanting to have some fun. There just wasn’t enough time to do all the studying I needed to do. As a result, I took full advantage of the professor’s “allowed” practice to prepare for the exams of the tax class. However, it became a substitute rather than a supplement to my studying. This method of “studying” resulted in fairly good test scores. The only problem was that I was not learning anything. This became tragically evident during the class final at the end of the semester. I bombed it and ended up not doing so well in the class. The more long-term result is that I still struggle with the tax area of my profession.

So what does my stroll down memory lane have to do with Enron, Arthur Andersen and now WorldCom, Tyco, Xerox (I could probably add to the list if I don’t complete this article before tomorrow’s headlines are released). Well, as I have read the news about these companies, it appears that some of the problem for the downfall is much the same as what I faced as a college student: demand for good results, but a lack of pure motive and commitment for obtaining them.

I. Desire for acceptable results.

I wanted a good grade. In the case of these large corporations, there has been great demand to maintain and increase stock prices. Investing has become the “in thing” for many Americans presenting new opportunities for many the make money. However, stock prices have been leveling off, and even declining, from the tremendous growth experienced in the late ‘90’s. In order to keep the investors investing, the demand to keep stock prices up has increased.

II. Lack of pure motive and unwillingness to put forth the necessary effort.

My focus was on the “now”; I wanted fulfillment for my desires during that semester. It seems that in an effort to satisfy the investors in the stock market, the focus of the leaders of some companies has turned to short-term results rather than the long-term building of a company; the former driven primarily by a motivation of greed, the latter involving a desire to serve. Quick results often come by short-cut methods and sometimes push the boundaries of ethical behavior to obtain them (ie., memorizing old test questions or using false or incomplete accounting and reporting methods). If the desired results are obtained, they are usually short lived. The motivation to build a strong company to better society by providing valued goods and services involves a long-term commitment and a great deal of effort. Incidentally, like the commitment, the rewards are long-term as well. This is principal set forth in the Bible in Proverbs 13:11, “Wealth obtained by fraud dwindles, but the one who gathers by labor increases it.”

III. Dealing with the consequences.

I perceive the area of tax as a weakness in my professional career today. I realize that a contributing factor is the lack of the necessary foundation of knowledge I should have obtained in the Fall of 1991. I have dealt with the limitation, but it is often burdensome to me as I strive to accomplish career goals. Likewise, there will be consequences of the corporate financial scandals now coming to light. The most significant consequence, in my opinion, will be lost freedom. I recently read an article by Charles Colson who, as you may recall, was involved in somewhat of a scandal himself in the early 1970’s. Converted to Christianity in August of 1973, he is now a committed follower of Christ and has dedicated himself to an outreach ministry to prisoners and to commentary of our culture based on a Biblical worldview. In his article dealing with the Enron/Andersen scandal, Colson refers to the argument of a theologian named Michael Novak stating that “western liberal democracy is like a three-legged stool. One leg, political freedom; the second, economic freedom; the third, moral responsibility. Weaken any leg – the stool topples. Enron’s collapse exposes a decayed third leg-moral responsibility.” As a result, law makers are now scurrying to pass laws in an attempt to legislate protection from such occurrences in the future. An action which, in effect, takes away the two remaining legs of the stool-political and economic freedom. A major impact will be upon the accounting profession, of which I am a proud member. Current proposed legislation racing through the U.S. House and Senate calls for a five-member oversight board (of which only two members are allowed to have experience as a CPA) empowered to set and enforce auditing standards for public companies and to investigate and discipline public company auditors; tasks formerly done by the accounting profession. No longer will the accounting profession be trusted to regulate itself. The result will be more burdensome. Effort will be spent on compliance rather than production.

IV. Conclusion: Applying the lesson learned.

The main lesson I learned from that tax class is this: The best method for doing anything is the honest and ethical way powered by a pure motive. This can only be done with the help of God Who has established for us the absolute truth necessary for the formulation of ethical behavior. As Colson wrote in his article, “We humans are very unreliable, capable of infinite self-justification.” There must be a foundation of truth on which our motives are built or else nothing we strive to accomplish will stand the test of time. I strive to build my life, including my career, on such a foundation. As I see it, business likewise has to build on a foundation of truth if it expects to exist for the long-term.

By Joel Wright, CPA

Profile: Accountant with Doshier, Pickens & Francis, P.C. since October, 1992 primarily performing financial audits of various businesses and governmental and non-profit entities.

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Foreign Currency

All companies are said to have a functional currency. That is the currency in which most transactions are denominated. If in doubt as to identity of functional currency, several factors should be examined: the currency of primary sales markets, the currency used for financing, the currency used to acquire materials and pay labor, etc. The dollar will be viewed here as the functional currency because it almost is for United States companies.

Prior to being reported in the financial statements, figures denominated in foreign currencies must be stated at their equivalent U.S. dollar values. Two different techniques have been established for this purpose.

Financial statements of foreign subsidiaries of U.S. companies are translated into U.S. dollars for consolidation purposes if the functional currency of the sub is other than the dollar.
Individual transactions of an U.S. company made in a foreign currency are remeasured into U.S. dollars. Although not as frequent, remeasurement is also used for the statements of a foreign sub if its functional currency is the U.S. dollar.