Ethics and Professional Responsibility

Like most business professions, there has to be a strong sense of ethics and responsibility. Especially professions like law or public accounting. They must have strong standards of integrity. In public accounting, people rely heavily on the information being provided on companies. Any mistakes or intentional cover up will have high costs to the economy and dire consequences. Even though there are laws and standards that regulate auditing, it does not completely stop or prevent firms from doing immoral acts. Before Sarbanes-Oxley Act of 2002, auditing for both public and privately held companies followed the AICPA 's standards of the 10 generally accepted auditing standards. In the years 2000-2002, there had been an increased of major corporate accounting scandals. Large corporations such as Enron and WorldCom went into bankruptcy by trying to cover up their losses and debt. In response to the all the fraud, the US government passed the Sarbanes-Oxley Act. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board, or PCAOB, and changed how audits of public companies are being done. The PCAOB adapted the rules and standards of AICPA for auditing and also included auditing of internal control as part of the report, leaving less room for auditors to move around. Here are some of the few companies that led to a drastic change of auditing standards for public companies.
Enron was one of the fastest growing American energy company of its time. In the span of 4 years Enron 's revenue had increased by over 750 percent. Despite growing at such a rapid pace, Enron filed for bankruptcy the following year. One of the main issues Enron had was independence. Enron 's main auditing firm was Arthur Andersen, however the firm did more than just auditing, they have also provided other non-audit services. This is mostly encouraged by Andersen 's compensation policies. The more the non-audit services the auditor can sell in addition with auditing, the more he or