Effect of Enron’s failure on the auditing profession. Introduction The feels that liquidaton of Enron has been a good omen for the auditingprofession, because, through this process, its main accessory and partner-in- crime, Arthur Anderson, also closed down.
Watchdog of the stakeholders
Since the auditors are appointed mainly for the purpose of protecting stakeholders’ interests, it is necessary that the audit firm complies with the purpose and determination of its appointment. "It sometimes it happens that the firm of auditors be in nexus with the top management of the Company in perpetration of fraud and misrepresentation, as was the case in Enron case." Anderson was put on direct notice of the allegations of Sherron Watkins, a current Enron employee and former Andersen employee, regarding possible fraud and other improprieties at Enron, and in particular, Enron’ a use of off-balance-sheet "special purpose entities" that enabled the company to camouflage the true financial condition of the company." (United States District Court Southern District of Texas 2007).
"The failure of Enron sent shock waves through the economy, resulting in a series of reforms and proposals that will significantly change accounting standards setting, auditing practice, and the legal and regulatory environment of financial reporting." (Accounting issues at Enron 2003).
Benefits of the Enron debacle
By far, the most important aspects of Enron debacle have been the reinforcement of legislature machinery to prevent such accounting reoccurrences. The induction of the US Sarbanes-Oxley Act (SOX) 2002 was promulgated in order make public accountability in the functioning of Corporations more transparent and enforceable. It has been found that, post Sarbanes Oxley Act. "audit firms are able to perform more traditional audits. There is a strong indicator that after more than 3 years of Sarbanes-Oxley compliance, internal auditors are ready for . and recognize a need for the internal audit function to get back to basics." (Survey Shows ‘Return to Roots’ For Internal Audit Departments as They Rebalance Away from Sarbanes-Oxley Focus, According to Protiviti Survey 2005).
Promulgation of PCAOB
Further, the Sarbanes-Oxley Act has also established the Public Companies Accounting Oversight Board (PCAOB), which is enforced with deterrent powers for infringement of its overriding Provisions. The main duties of the PCAOB would lie in the oversight of the audit of Public Companies, primarily to act as the watchdog of the interests of investors and the public in matters relating to audit of public share issuing Companies.
(Public Law 107-204 2002).
Thus it may be concluded that the dissolution of the Giant energy conglomerate, Enron which also took its auditors, Arthur Anderson under the liquidator’s hammer,
Served as an eye-opener to the financial world that the efficiency of the law enforcement machinery could turn out to be even more efficacious than its most devious criminal perpetrators. While the Enron scandal may have been consigned to corporate history, the spectre of its sheer complexity, shall continues to haunt the minds of the right-minded accounting firms for a long time to come.
United States District Court Southern District of Texas. 2007. The grand jury charges. Find law. http://news.findlaw.com/hdocs/docs/enron/usandersen030702ind.html (accessed November 14, 2007).
Accounting issues at Enron. 2003. Decision analysis. The CPA journal. Bnet. http://jobfunctions.bnet.com/whitepaper.aspxdocid=57431 (accessed November 14, 2007).
Survey Shows ‘Return to Roots’ For Internal Audit Departments as They Rebalance Away from Sarbanes-Oxley Focus, According to Protiviti Survey. 2005. Yahoo finance. http://biz.yahoo.com/prnews/071106/aqtu115.html.v=21(accessed November 14, 2007).
Public Law 107-204. 2002. Public Companies Accounting Oversight Board (PCAOB). Title 1- PCAOB. http://www.pcaobus.org/About_the_PCAOB/Sarbanes_Oxley_Act_of_2002.pdf(accessed November 14, 2007).