Post-Enron reforms of the accounting industry may restore investor confidence but could also undermine the profession's development, according to Deloitte Touche Tohmatsu global chief executive James Copeland. Mr Copeland said he supported attempts to strengthen the accounting industry, but warned the clean-up might risk 'killing a problem while creating another'. 'One of my great fears is that the reform movement may become so severe that it actually becomes counter-productive, and it will drive good people away from our industry,' he told the South China Morning Post. The collapse of energy giant Enron a year ago led to the downfall of its auditor Arthur Andersen, which was accused of helping the company hide its debts. Andersen was also seen as having a conflict of interest because it provided consulting services to Enron while acting as its auditor. The United States government has passed new laws and rules to tighten oversight on accounting firms and financial disclosure - areas in which many other markets including Hong Kong have also carried out reforms. Mr Copeland said a recently enacted law in the US would make it much easier to sue an accountant. This had led many insurance companies to refuse coverage for the industry, leaving accountants to face the financial risk of being sued over an audit failure. Mr Copeland said Deloitte had tried to recruit senior officials from the government or companies to join them as partners but was turned down due to their fear about litigation risks. 'That is a real danger to have these talented people refuse to join the accounting industry. We need to ensure that we would not have turned the reform into a punishment to the whole industry,' he said. He said the new law in the US had forced accounting firms there - as well as in many other parts of the world including Hong Kong - to separate their consulting and auditing businesses. This increased the independence of auditors but would also limit the services they could provide. He also expressed concern that different countries were carrying out different accounting reforms in their local markets. For example, the US has required accounting firms to rotate their lead auditors every five years for the same clients, while others have different rotation schedules or no requirement at all. Lack of co-ordination among different countries meant international accounting firms needed to be aware of many different sets of rules, adding confusion to the market and threatening the accounting industry's growth. 'I think there needs to be some change in the regulation of accountants but I think all need to beware of risks of potential consequences. The regulator should do anything to protect the investors but there is a risk of killing one problem and causing another,' he said. Accountants were usually the ones to be blamed in a corporate failure but directors and management should also be held responsible. Mr Copeland said problems with the accounting industry were not due to a decline in its quality. He instead blamed the poor economy. 'Every company has an auditor so every problem company has an auditor associated with it,' he said. It was inevitable that auditors would be put under the spotlight, but regulators and the public should also adjust their expectations of auditors. There was a wide expectation-gap on what they believe the auditors should do and the reality of what accountants could do, he said. Contrary to public belief, accountants could not perform a so-called 'perfect audit' as they are unable to check all transaction details. Transactions could be examined only selectively in deciding whether financial statements presented a true and fair view of a company's condition. 'We cannot check every transaction in the financial statements. We could do so but it would slow down economic activities substantially. It is not practical,' he said. 'We can reduce risks for investors but we can't do everything. The regulators should educate the public on what a good auditor can do and can't do.' Mr Copeland said investors could be easily led into buying shares of problem companies because they were too eager to invest in fast-growing businesses. After Enron, he said Deloitte had reviewed its internal system and had already adopted the practice of rotating its auditors every five years for the same clients. It was also considering adopting tough ethical procedures to ensure the integrity of its staff. Since the collapse of Andersen, Deloitte has merged with Andersen's practices in 20 countries, bringing its number of employees to 23,000. This has brought Deloitte 263 new clients with annual revenues of more than US$1 billion, a 33 per cent increase in its client base, Mr Copeland said.