What Arthur Andersen employees couldn't have known as they furiously shredded Enron Corp. documents last fall is that their actions would reshape the accounting profession-and by correlation, the financial advisory industry-while enhancing the marketplace credibility of planners who truly do put clients' interests first without strings attached. With Andersen's consultants recommending aggressive strategies to Enron management on the one hand, Andersen's auditors approving the reporting of those transactions on the other, and Enron's payment to Andersen of $27 million and $25 million for consulting and audit services, charges that certified public accountants lack the requisite independence are coming from all quarters, including financial advisors' clients.

"For the first time, investors feel they can't trust the information they are getting and that they have been let down by the CPA profession," says planner Susan MacMichael John, proprietor of Financial Focus in Wolfeboro, N.H. "If you can't trust the CPAs, who can you trust?"

Given the clamor over Enron's off-balance sheet (i.e., nondisclosed) special-purpose entities, plus the seemingly endless stream of earnings restatements pouring out of corporate America, clients also are timorously asking whether questionable accounting is a pervasive practice at publicly held companies, says Bellevue, Wash., planner Michael Boone. Is our financial-reporting system a house of cards?

Unfortunately for the advisor, there are no easy answers to give clients, although it seems safe to say that the times, they are a-changing.

To be sure, CPAs outside the Big 5 (which primarily services large, multi-national public companies) haven't seen their middle-market and owner-manager clients cast a suspicious eye toward them, nor has business been hurt. "Overall, the spotlight has been so bright on Andersen that it alone is taking the brunt of all of this," says Arthur W. Bowman, editor of the accounting-industry newsletter Bowman's Accounting Report. "The profession as a whole, and especially the local or regional firm, is not losing any respect among their client base."

But that doesn't mean your hometown accountant isn't suffering in silence, at least, from the Enron/Andersen fiasco and heightened public sensitivity to earnings revisions (which imply that the auditors didn't do their jobs). "It affects what I market, which is that I am a CPA-financial planner and that that makes me better than someone else," says Mitch Freedman, president of MFAC Financial Advisors in Sherman Oaks, Calif. "I think we're losing-if we haven't already lost-that edge because the CPA has been tainted with conflicts of interest." Recognizing such fears, the American Institute of CPAs, the field's high-profile professional association, launched national print and radio campaigns in March aimed at restoring confidence in public accountants. (Interestingly, the CFP Board of Standards, which is trying to convince more CPAs to become Certified Finanial Planners, has no plans to take opportunistic advantage of the accounting credential's fall from grace to achieve relative gains in prestige for its CFP designation.)

There is no question that the accounting profession will change post-Enron/Andersen, starting with fewer entrants coming into a field that has already seen a significant drop in college graduates since the mid-1990s, says Allan Boress, a Eustis, Fla., practice-management consultant to public accountants. "Andersen not only trashed their firm, but they took a highly respected profession and threw it into the toilet overnight. That's going to (steer) students away from being CPAs," says Boress. "What mother is going to brag about her son becoming a CPA when these people are getting indicted?"

The other, brighter side of the same coin suggests that if once-venerable Andersen does capitulate, professionalism at the remaining Big 4 will improve "from a standpoint of making certain they survive by not replicating what occurred at Andersen," says Lawrence Gelfond, senior director of Denver accountants and consultants Gelfond Hochstadt Pangburn & Co.

The most cataclysmic change for the accounting industry is an expected prohibition on audit and consulting activities for the same client. (Even the AICPA says it no longer opposes limits on certain consulting services-namely, information technology and internal-audit design-provided to public-company audit clients.) This is tantamount to a paradigm shift that could accelerate accounting firms' advance into financial planning, says accounting-industry consultant Chris Frederiksen. "Accountants who become disenchanted with auditing need to make a decision about which direction to go, and financial services is a big growth area," says the head of Frederiksen & Co., in Mill Valley, Calif.

As a line of business, financial planning is much more profitable than mundane activities (bookkeeping, payroll tax) that have been commoditized, Frederiksen says. And planning won't be regulated away from CPAs like consulting, says Bob Bunting, chairman of Seattle-based Moss Adams LLP, the 12th-largest accounting firm in the United States. Bunting says the tier of 25 or so accounting firms below the "Big Few" will acquire "full-service, personal wealth-services companies that offer financial planning, asset management, family office, the whole gamut. CPA firms will be doing a lot more of that in three years than they are today-by a long shot," he says.

For large publicly traded corporations, the fallout from Enron/Andersen includes higher audit fees going forward, experts say, citing two reasons. First, premiums for auditors' professional-liability insurance will rise and be passed along to the user of the service. Second, the major accounting firms have a habit, so industry scuttlebutt goes, of offering audit services at loss-leader prices to secure lucrative consulting work from clients-but that subsidy strategy doesn't fly in a world where CPAs can't provide both services. Ergo, audits will come to be priced on their own economics-in other words, higher. Other predicted changes at public companies revolve around issues of corporate governance. "There's going to be greater pressure placed on audit committees and outside independent directors," Gelfond says.

At base, Enron/Andersen is about financial reporting, and that arena, too, stands to change, although not necessarily for the better. True, companies will disclose more information in their annual reports (particularly regarding heretofore off-balance sheet items) as the pendulum swings from the recent past's proclivity to underreport. And the major accounting firms will exert less influence in the future on the Financial Accounting Standards Board, the entity that promulgates generally accepted accounting principles for U.S.-based companies.

But Bunting foresees increased government regulation and oversight of financial reporting retarding an already sluggish standards-setting process. For the last several years, institutions have been creating sophisticated financial instruments for treasurers of multi-national corporations at a much quicker pace than the FASB has been able to develop the attendant accounting. Injecting the government into the equation will only widen the time lag and create additional financial-reporting problems, Bunting laments. "There are some real challenges (ahead for) keeping financial reporting and disclosure current with the development of financial instruments and schemes," he says.

International accounting standards don't figure to benefit from Enron/Andersen, either. Unknown to most U.S. investors and their advisors, a significant change in January 2001 at the London-based International Accounting Standards Committee jump-started the development of internationally applicable accounting rules, the existence and acceptance of which would improve the efficiency of the capital markets. For example, the rules would make it easier for companies to list their securities in multiple countries. But the major accounting firms shoulder most of the funding for international accounting, "and they don't have money to spend on that right now, they're so focused on dealing with (issues) in the U.S.," says Bunting, who also chairs Moores Rowland International, a worldwide association of accounting firms. "The whole debacle is going to slow down internationalization of accounting."

At this juncture, the long-range implications of the Enron/Andersen affair are anybody's guess and vary with the observer's level of cynicism. One accounting-industry leader thinks the hubbub will be over by Memorial Day and that any respect that CPAs may have lost will be restored in due time. Another sanguine projection is that Enron/Andersen results in little net change to accounting firms' historic paradigm of consulting with audit clients.

According to Daniel Fensin, managing partner of the Chicago CPA firm Blackman Kallick Bartelstein LLP, it wasn't auditors' idea to become consultants in the first place. "Years ago, the marketplace turned to accountants and said, 'You know our businesses. We think you can help us.' That's what created the MAS (management-advisory services or consulting) area." says Fensin. He adds he expects those same market forces to return to the fore. "Right now, people are shocked by Enron, but ultimately I think companies will say, 'Why should I go someplace else when there's already somebody that has all this information? Why wouldn't I want them to help me?' Whatever happens now," Fensin says, "my guess is that in 10 years we'll be right back at the same place."

The most common viewpoint, however, supposes that the freewheeling accounting at Enron Corp. is just the tip of the iceberg. Indeed, on April 1, Xerox joined the profits-restatement parade with an announcement of its intent to revise four years of earnings; allegations are flying that Qwest Communications International and telecom concern Global Crossing swapped assets to boost reported revenues; and the SEC is inspecting the books of Adelphia Communications, the nation's sixth-largest cable-television company. Where can investors place their trust?

Not with Wall Street, says Gelfond, who sees the financial community's long-touted Chinese wall crumbling, if it ever existed. Outfits such as J.P. Morgan Chase, Bear Stearns and Merrill Lynch reap staggering fees for their consultative roles in acquisitions and other investment-banking transactions, then express an opinion on the investment worthiness of the entity to retail clients-a paradigm akin to Andersen's audit approval of its consulting recommendations.

Gelfond expects Wall Street's "significant conflict of interest" to be exposed for what it is, once the regulators and Congress have dealt with the primary issues facing them. "Ultimately," says Gelfond, "investment bankers and their recommendations will be looked at in a much different light, particularly when they are selling something."

The credibility of Wall Street research also is being subjected to serious doubts about its veracity, though analyst recommendations never enjoyed the unquestioned respect that audited financial statements once did. Independent financial advisors, who have avoided industry-wide scandals for more than a decade, need to be vigilant about ensuring their own profession's continued integrity.