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Critics of GAAP (Generally Accepted Accounting Principles) and the accounting profession, have argued that current practices do not properly value intangible assets - including employee contributions, skills and knowledge. In fact, "... intangible assets like innovation, employee education, customer loyalty, ... are barely measured by the accounting system" (Farrell, 2002).

Even the accounting profession has acknowledged the importance of employee valuation, and "All the major accounting firms have published position papers on devising better quantitative, relevant measures in the modern economy" (Farrell, 2002). But their "position papers" may be too little too late - at least in the Andersen case. Are more employees leaving as the number of clients dropping Andersen continues to climb? Or are clients inclined to leave because Andersen's best talent may be jumping overboard? Exactly how valuable are Andersen's employees to the firm's continued existence?

This is difficult to determine, because current accounting methods do not include tested ways to measure many intangible assets, like Andersen employees' knowledge, skills, and contributions. Yet, in an information-based economy, it is this human capital and knowledge that creates worth for the firm. If accounting methods that better reflected the modern economy were available, a more accurate measure of Andersen's future potential could be determined.   

Nobody is more directly impacted by the Enron/Andersen problem than Andersen's own employees. And nobody understands this better than Baruch Lev, Professor of Accounting and Finance at New York University, who indicates that accounting "... no longer delivers accountability" and has become "increasingly irrelevant" (Webber, 2000). Lev "has become the most articulate, thoughtful, and outspoken critic of old-fashioned accounting, and the most creative advocate of a new, knowledge-based approach to accounting" (Webber, 2000). Lev has repeatedly warned of the dangers of using an accounting system that "cannot capture the new economy, in which value is created by intangible assets." The disconnect, " says Lev, affects more than just financial analysts and corporate financial officers: "Employees don't know how to value their contributions accurately..." (Webber, 2000). In an information-based economy, this has enormous implications for both companies and labor.

For Andersen employees, there is also a certain paradox about the difficulty of quantifying the value of their work and association with the firm. Accountants are suppose to be leaders in the valuation of intangible assets, like human capital and employee contributions. Yet, instead of being able to capitalize on their own career contributions at Andersen, they are actually distancing themselves from the organization all together. Because of the Enron scandal, "that scarlet ‘E' could just as easily be an ‘A' for Arthur Andersen... If you work for a firm like this, how can you avoid a tainted reputation?" (Wheat, 2002). It is ironic that employees at the Andersen accounting firm are now confronted with this dilemma.

The accounting profession needs more comprehensive ways to measure human capital and other types of intangible assets. Now that these accounting problems have directly impacted the accounting industry, reform efforts hopefully will be accelerated.

References

Farrell, Christopher. "Needed: 21st Century Accounting Rules" Business Week. March 22, 2002.

Revell, Janice. "Fight and Flight at Andersen" Fortune Magazine. April 1, 2002.

Webber, Alan. "New Math For A New Economy" Fast Company. January/February 2000.

Wheat, Alynda. "Bad Company". Fortune Magazine.March 18, 2002.