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The problem with the accounting profession these days can be summed up in one word: liability.
Staggering sums are being sought in professional liability suits against big CPA firms. The suits have been filed by disgruntled investors after firms failed financially after receiving clean bills of health on audits prepared by the biggest names in accounting.
Accountants also fret these days about new competition, the need for CPAs to develop industry expertise and marketing skills, new services demanded by clients that may force smaller firms to merge, and the low-level staff trimming that has taken place at most Detroit-area accounting offices. But basically, accounting as an industry is healthy, those inside and outside the profession say.
"It's an extremely valuable business area," said Paul Danos, assistant dean of the University of Michigan School of Business and Arthur Andersen professor of accounting at the school. "Except for this liability business, from the annual reports I see from these outfits, from what I know the partners make, these are extremely economically healthy businesses."
But Danos and other observers say the liability issue is a mighty big "except."
Several of the largest accounting firms, called the Big Six, have been hit for huge damages by investors in failed firms, saying the accountants' audits should have diagnosed fraud.
The accountants complain that they were usually lied to by management just as much as the defrauded investors--and in any event, their liability ought to be limited in some form to the scale of their participation in the firm.
Judges and juries, operating under the legal doctrine of joint and several liability, have not listened. Some suits have socked firms with judgments that translated into six-figure hits for individual partners.
Nationwide, accounting firms now face more than 3,000 suits seeking up to $13...