Andersen, Auditing and Atonement

Ten years ago, Arthur Andersen was forced to surrender its licences in the United States after the Enron scandal, precipitating its global collapse. December 2011 marked 10 years since Enron, the Texas energy company, filed for bankruptcy after perpetrating one of the world's biggest business frauds. More significantly for the accounting profession, May 2012 marks a decade since the Enron indictment in the United States, and the beginning of the end for the well-respected Arthur Andersen, one of what was then the Big Five accounting firms.

The firm was convicted of obstructing justice by destroying thousands of documents related to its work for Enron. While the ruling was overturned in 2005 on technical grounds, it came too late to resuscitate the brand. For the profession, the scandal drew wide scrutiny on the supposed compromised position of large firms that audit the books of clients to whom they also provide consultancy services.

For a look back on the past decade of reactions, reforms and soul-searching in the accounting profession, read the article “ANDERSEN, AUDITING AND ATONEMENT: The accounting profession 10 years after Enron” by George W. Russell at GAA Accounting online.

Report of the Commission to Study the Public’s Expectations of Audits - June 1988

The Report of the Commission to Study the Public’s Expectations of Audits (Macdonald Commission Report) was released by the Canadian Institute of Chartered Accountants (CICA) in June 1988. The Commission had a threefold mandate: (1) to study the public’s expectations of audits; (2) to determine whether there is a gap between what the public expects or needs from auditors and what auditors can reasonably expect to accomplish; (3) to the extent there is an identifiable gap, to make suggestions as to how the gap might be narrowed.

The  Macdonald Commission Report made numerous recommendations regarding: strengthening the audit environment; accounting standards; extensions of financial disclosure; valuations and estimates; disclosure outside financial statements; exercise of auditor’s judgment; additional auditor responsibilities; clarification of financial reporting responsibilities; professional self-regulation; public input to auditing standards; employee fraud; management fraud; illegal acts; changes of auditors; communication with regulators; accounting standards for financial institutions; auditor reporting on internal control; and, auditor’s knowledge of the business.

A listing of the report’s 50 recommendations is provided in Appendix A (pages 139-146) of the report.