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July 9, 2002 -
Next time you see the word
“Enron” or “WorldCom,” think beyond the company president and wonder about the
board that put him there.
That’s
what Millian Toms does. Toms, a Royal Oak CPA sits back and
wonders what’s happening behind the scenes, and why more
people aren’t wondering about the same things.
“People
forget,” Toms
says. “A board runs these huge companies and they hire someone to be president.
They use golden parachutes to woo them in to take the job, and that person may
or may not accomplish the goal. You can fault the executives – but isn’t it more
the boards that are responsible?”
Toms
thinks her profession is taking a hit in some undeserved areas. Take shredding,
for example.
“Now there
are oversight rules in place for that, but there is nothing wrong with shredding
previous work that is no longer pertinent. Shredding to CPAs isn’t such an
unusual thing at all. What I’m talking about is shredding drafts, notes, to-do
lists, etc. – not final documents. It’s a very common thing, but you wouldn’t
know that today,” Toms says.
Oversimplification is the overall problem Toms sees in the day-to-day reporting
of companies like WorldCom and Martha Stewart. She doesn’t think television or
most newspapers understand what’s actually going on.
“It isn’t
as simple as reading a financial statement and forming an opinion,” Toms says.
“And by the way only a CPA can issue a written opinion. Bookkeepers and
accountants can tally up all the work, but only a CPA can then write an opinion.
“But
getting back to it – look at Martha Steward and IMclone. Everyone knows she
barely saved $43,000 by selling off her stock. But does anyone know or realize
that cost her $94 million in market value decline when people realized what she
had done?”
Toms says an audit for a company the size of Enron is extremely
costly. “In most cases, you have to ask yourself, ‘Why would you want to have an
audit?’ They are very costly. An audit takes a look at all the major assets,
liabilities, income and expenses and the whole financial position of a business
at a certain point in time.
“To do that, they verify information with outside sources for
example, they go directly to the bank and verify the account balances versus
taking the company’s word for it.
“A CPA
will help their clients stay honest by using the system to save them as much on
taxes as possible,” Toms says, “while still showing a good financial position
for financing purposes.”
In fact,
Toms says there are only four reasons to have an audit:
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If the
company is so large that you want to get in better touch with what’s going on.
This is most often done by internal audits.
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If the
Securities and Exchange Commission requires it (and it will for all
over-the-counter traded stocks.
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Banks
will require it if you are up over certain totals
in loans, usually from $5 to $10 million in loans.
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Agencies
will require it of municipalities and schools over certain sizes.
“That
saying still holds – if it looks too good to be true, then it probably is,” Toms
says.
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