Accounting history
Industry scandals led to professional reforms
Paul Clikeman says accounting frauds run in cycles.By Michelle Hershman, L ’07
Accounting is a subject that might seem tedious to some students. That’s why Dr. Paul Clikeman, associate professor of accounting, found a way to look beyond the numbers and show students that accounting can be as much of a page turner as a crime novel.
“Accounting can seem dry if all you are talking about is the numbers,” says Clikeman, who started teaching auditing and financial accounting at Richmond in 1995. “But it can be fascinating if you are thinking about real people trying to manipulate those numbers in order to steal millions of dollars.”
To help students understand how accounting and financial regulations developed into their present-day form, Clikeman recently wrote his first book, Called to Account: Fourteen Financial Frauds that Shaped the Public Accounting Profession. The book describes the history of public accounting in America in terms of how various frauds shaped the profession.
“I found that talking about fraud is one of the best ways to get people interested in accounting because everyone likes a good crime story,” Clikeman says.
Called to Account begins in the late 1920s with the stock market crash and Ivar Kreuger, chairman of Swedish Match, the world’s largest match manufacturer. Kreuger’s company was the Enron of the 1930s, resulting in the first major accounting scandal. Congress reacted by passing the Securities Act of 1933. Five years later, another scandal took place involving McKesson and Robbins. The book continues through the cycle of scandal, reforms, more scandal and more reforms, ending with Enron and WorldCom in 2002. The latest scandal resulted in the Sarbanes-Oxley Act of 2002.
“The overall thesis is that every five or 10 years there is a new accounting scandal, and Congress passes new rules to try to fix old problems, and then they do it all over again,” Clikeman explains. “It’s similar to the airlines. Before 9-11, you could take a box cutter on the airplane, but now you cannot. Two years later, someone has an explosive in his shoe, and now you have to take your shoes off. More recently, shampoo is the problem. It’s just a cycle that goes over and over.”
Clikeman’s students provided the motivation for writing Called to Account. In 2002, he had five students who accepted jobs with Arthur Anderson before the company went bankrupt. When they asked what was going to happen to the future of accounting, Clikeman responded with his thesis for the book.
He told them, “This is nothing new. There was a bigger crisis than this before you were born, and there were bigger problems before that. The accounting profession has overcome bigger problems than this.”
Clikeman says students tend to think the rules we have today are the way accounting has always been. They have no idea the rules today are different than the rules we had 10 years ago and 10 years before that, and it’s because of the frauds, he says.
“I love the students because I like showing them accounting is far more interesting than they ever thought it would be when they entered class the first day,” says Clikeman, who left public accounting after working as an auditor at Deloitte Haskins & Sells because he thought it would be more fun teaching accounting than practicing in the field.
After working in public accounting, Clikeman received a Ph.D. from University of Wisconsin and taught for two years at Valparaiso University where he received his undergraduate degree.
Although Called to Account does not yet have a publisher, Clikeman uses the book as a supplement in his classes. A colleague at Kennesaw State also is using the book in a master’s level forensic accounting class.
When the book is published, Clikeman would like professors to use it as a supplement in auditing and financial classes. In the meantime, Clikeman is waiting for the next accounting scandal.
“It will give me a reason to write a second edition,” he says.