The Accounting Relationship
Follow this link to watch "Bigger Than Enron", a video about how a relationship can destroy a company:
http://youtu.be/UvOdpI0Cx0w
Relationships are key to retaining and maintaining clients in the business world. Companies and business people will go to great lengths to preserve a positive relationship between an important client. How far do these relationships, though? The relationship between auditors and companies play a large role in many instances of fraud. This is called “cooking the books.” Arthur Andersen, an accounting firm, and Enron, a large corporation, are a prime example of this issue. Andersen was improving Enron’s misleading financial statements in order to keep the client happy, while also stealing $27 million. In the article titled “How can we prevent another Enron, or worse?”, Don Moore and Max Bazerman claim that the rules related to accounting standards need to be changed in order to maintain integrity within the company being audited and the auditors themselves. The rule relating to rotation of companies was created by the Sarbanes-Oaxley Act in 2002, but has been diluted over the years. The authors claim that auditors’ lack of rotation between companies creates long-term relationships, which threaten auditor independence. Moore and Bazerman claim, “The problem is not compliance with the rules. No, the problem is the rules themselves, which permit conflicts of interest and ultimately undermine auditor independence.” (Moore and Bazerman, 2012) The authors’ point is that auditor independence is threatened by the rules that are currently in place. Most auditors comply with all rules and standards. However, if long-term relationships between client and auditor continue to be a key goal, integrity and independence could be at stake in the process. It is a sensitive subject in the accounting world because firms do not want to lose major clients that bring in a large percentage of income. The closer the relationship becomes over the years, the more vulnerable the accounting firm becomes.
http://youtu.be/UvOdpI0Cx0w
Relationships are key to retaining and maintaining clients in the business world. Companies and business people will go to great lengths to preserve a positive relationship between an important client. How far do these relationships, though? The relationship between auditors and companies play a large role in many instances of fraud. This is called “cooking the books.” Arthur Andersen, an accounting firm, and Enron, a large corporation, are a prime example of this issue. Andersen was improving Enron’s misleading financial statements in order to keep the client happy, while also stealing $27 million. In the article titled “How can we prevent another Enron, or worse?”, Don Moore and Max Bazerman claim that the rules related to accounting standards need to be changed in order to maintain integrity within the company being audited and the auditors themselves. The rule relating to rotation of companies was created by the Sarbanes-Oaxley Act in 2002, but has been diluted over the years. The authors claim that auditors’ lack of rotation between companies creates long-term relationships, which threaten auditor independence. Moore and Bazerman claim, “The problem is not compliance with the rules. No, the problem is the rules themselves, which permit conflicts of interest and ultimately undermine auditor independence.” (Moore and Bazerman, 2012) The authors’ point is that auditor independence is threatened by the rules that are currently in place. Most auditors comply with all rules and standards. However, if long-term relationships between client and auditor continue to be a key goal, integrity and independence could be at stake in the process. It is a sensitive subject in the accounting world because firms do not want to lose major clients that bring in a large percentage of income. The closer the relationship becomes over the years, the more vulnerable the accounting firm becomes.