Accounting Scandals

The fallout that accompanied the accounting scandals of the early 2000’s had an immediate impact on corporate business and accounting practices which is still being felt today. The collapse of Enron and its accounting firm Arthur Andersen, as well as the subsequent collapses of Worldcom and others have left a permanent mark on how corporate businesses and accounting firms are perceived and how they are regulated. It has also altered the experiences of students who are pursuing, or are considering the pursuit of, an accounting degree. With the collapse and subsequent fallout from these accounting scandals comes the inevitable introspection. The events that followed had worldwide implications and were analyzed extensively in the media as well as in government circles. Experts pointed their fingers at a number of different reasons that led to the massive fraud in business and accounting practices in the Enron collapse. One theory put forth by Alex Berenson of the New York Times was that “the focus that analysts, investors and executives place on quarterly earnings as a company’s success indicator” began to take precedence over the ethics of executives and accountants (Roberts B08). In Paul Craig Roberts’ review of Berenson’s book, he disagrees with Berenson’s contention, or at least points out the holes that he sees with that logic. Robert’s points out that the scapegoats Berenson cites as the root causes of the scandals (quarterly earnings, stock options, and price competition between accounting firms) were in fact yesterday’s reforms intent upon increasing the protection of corporate investors (Id.). Berenson posits that a “cult” of the quarterly earnings developed, which in some cases caused executives and accountants to trade ethical accounting practice for the healthy appearance of the company. Roberts’ rebuttal points out that quarterly earnings were the result of a reform that sought to provide investors with more timely information about the

Cited: Allen, Mike. “CPA Profession Finding Its Way Despite Scandals.” San Diego Business Journal No. 15, Vol. 24, 14 April 2003: pg. 7. “FEI Survey: Management Drives Sarbanes-Oxley Compliance Costs Down, But Auditor Fees Virtually Unchanged.” Financial Executives International. 16 May 2007 . Gerena-Morales, Rafael. “Auditing Experts Warn of more Accounting Scandals If Reform Isn’t Embraced.” South Florida Sun-Sentinel 5 November 2004. “How to Clean Up After Corporate Scandals.” Editorial. Pittsburgh Post-Gazette 6 October 2002: pg. F-4. Roberts, Paul Craig. “Unintended Consequences of Earlier Reforms Bite Market Hard.” The Washington Times 16 March 2003: pg. B08. Taylor, John. “Accountant wear Enron Black Eye.” Omaha World Herald 17 February 2002: pg. 1D. Titard, Pierre L., Braun, Robert L., Meyer, Michael J. “Accounting Education; Response to Corporate Scandals.” Journal of Accountancy No. 5, Vol. 198; 1 November 2004: pg. 59.