January 14, 1998
Michael M. Stahl
Deputy Assistant Administrator
Office of Enforcement
and Compliance Assurance
U.S.Environmental Protection Agency
Dear Michael M. Stahl,
As a participant in the National Performance
and a member of the U.S.EPA's Environmental Accounting
Project I feel the
EPA is overtly avoiding the issues and controversies of
environmental accounting and auditing in the U.S.
Here is the first part of my commentary on the SEC's policy
confidentiality for internal environmental audits of publicly
companies and the lack of enforcement of federal environmental
laws as stated in the SEC's regulation S-K.
External codified environmental financial accounting tends to be an
topic in both the EPA and among environmental groups, but I think
important issue to complement all dialogue on establishing
indicators and implementing an enhanced set of performance
EPA's enforcement and compliance assurance program.
An uniformly enforced environmental accounting field will give
gravity to due dilligence to our nation's environmental laws.
I look forward to your commentary and continuing this dialogue with the EPA.
Consultant on Environmental Management
1228 South Masson Road
St.Louis, Missouri 63131
Can the Fox Watch the Hen House?
By Donald Sutherland
Is the fox watching the hen house?
That's a question government officials are asking in reviewing the
for corporations to buy favorable (environmental) financial reports
auditing accounting industry they pay to consult.
The same accounting industry which the U.S.Securities and
Commission (SEC) relies on to create and enforce national
generally accepted accounting principles (GAAP).
In December 1996, SEC Chairman Arthur Levitt warned the accounting
against expanding consulting practice with the same companies they
Addressing the American Institute of Certified Public Accountants at
national conference in Washington,D.C., Levitt cited two private
studies on the growing trend of conflict of interest in the
industry's consulting and auditing practice weakening quality of
reporting to stakeholders.
In February 1997, three environmental groups (Friends of the Earth,
Club, and Citizen Action) sent a letter to the SEC, demanding
investigation of the entertainment giant Viacom Inc. for failing to
an alleged $300 million in superfund clean up liabilities in their
report to shareholders.
Price Waterhouse LLP, who audited Viacom's annual report also issued a
opinion for Viacom's financial report to shareholders minus the
superfund liability figures.
Did Price Waterhouse LLP as consultant and auditor to Viacom Inc.
anything wrong and is there a conflict of interest?
Price Waterhouse has no comment.
The SEC has no comment.
Under federal disclosure laws and the SEC's Regulation S-K, all
traded firms are required to annually file significant
material expenses on a 10-K form to stakeholders, and all
liabilities must be accrued and disclosed if they are estimated to
Accounting analysts citing there is more profit in consulting than
say Price Waterhouse departed from GAAP and SEC 10-K environmental
requirements to minimized their client's (Viacom) volatility
On May 21, 1997 the SEC and the American Institute of Certified
Accountants (AICPA) announced the formation of a new private-sector
body to establish independent standards for the auditors of public
Already critics are charging the ISB's majority makeup of accounting
profiting from conflict of interest relationships in consulting and
will bias rulings to allow departure of significant environmental
Representatives of state boards of accounting claim that while the SEC
has juristictional authority over ISB, the Big Six accounting firms
manuevering to take over SEC auditing operations using the new SEC board
"It's no secret the Big Six, financially carry AICPA and the
Accounting Standards Board (FASB)" says Jay J. Church, Executive
the New Jersey State Board of Accountancy.
"These organizations are being used by the Big Six to manuever in
government bodies to replace the SEC's auditing authority," he
Greg Newington, Chief of Enforcement for the California State Board
Accountancy, notes there is a strong lobby effort by the accounting
to reverse the state legislation which prevents licensees from
in cases involving conflict of interest with a client.
"There's a lot of money at stake here," he says.
Of the $11.2 billion in global assets for Anderson Worldwide more than
are coming from consulting, and Anderson Consulting is positioning
separate from the accounting unit.
With the proposed mergers of KPMG Peat Marwick/ Ernst & Young and
Waterhouse/Coopers & Lybrand, over fifty four percent of all
U.S. companies will be audited and consulted by the two
Government officials fear the growth of consulting contracts are
quality financial reporting, particularly with auditing assets down
42% of the total revenue for the Big Six (soon to be Four) accounting
"It's not only the Big Six, the situation is rampant through the
accounting profession," said David Costello, President of the
Association of State Boards of Accountancy (NASBA).
"The fact is if you are doing an audit of a firm for a $300,000 fee and
have a consulting contract with the same firm for $1 million it's hard
see how you can maintain being independent with that audit," he says.
Costello also comments that state boards are helpless in their efforts
combat the accounting industry in challenging cases of conflict of
"We don't have the resources to challenge Anderson or a Big Six
particularly if we have to go against an independent auditing board
comprised from the Big Six."
AICPA even admits its working to take over the SEC's auditing operations.
"I wouldn't put it in so strong a wording as that, but we are preparing
absorb more of the SEC's auditing authority," says Catherine Zita,
Manager of the Profession Ethics Division of AICPA.
"AICPA resents being overriden by the SEC's regulations," she says.
A spokesman for the SEC's Division of Corporate Finance admits
Commission is heavily reliant on AICPA and FASB to enforce auditing
of the limitations of the Commission's operating budget and small
And that includes enforcement of environmental financial audits.
So, with Price Waterhouse on both the new SEC independent standards
and the Board of AICPA many industry analysts feel the chances of
being forced anytime soon to disclose its' Superfund liabilities in an
"Not very likely," says Martin Freedman, professor at the School
Management at the State University in New York in Binghamton, "and
Superfund departure is not unusual".
"My 1996 study of the Environmental Protection Agency's list of 900
traded potentially responsible parties listed on the National
found most companies make little or no disclosure effort on
expense/liability reporting," he says, "and it's getting more
and more overt."
(c)Donald Sutherland 1998