"Enron paid Andersen $25 million for its audit…and $27 million for 'consulting' and other services" which meant that Anderson had a substantial financial stake in retaining Enron as a client (Kadlec 2002). The Enron case illustrates the difficulty of self-policing within the industry. Today, providing additional services besides the audit itself is considered an ethical 'red flag' for an accounting firm (Verschoor 2012).
In retrospect, it is difficult to see how the Enron case could have had a happy ending, given that its business model was based upon fraud and deceiving investors. The best case scenario would have been for Anderson not to take the case at all. That is why effective pre-screening of clients is so important. "Practitioners must assess the ethical environment found within potential and existing clients and business partners" (Romal & Hibschweiler 2004). According to Sarbanes-Oxley Act, CFOs must sign a code of ethics. If no such requirement exists, the company must provide an explanation as to why. There seemed to be a clear conflict of interest in the firm taking the case at all. "Two of Enron's senior financial executives had previously worked for Andersen in Houston: Richard Causey, Enron's chief accounting officer, and Jeffrey McMahon, chief financial officer" (Kadlec 2002). The root of the scandal did not lie in the hands of certain employees uncertain of Anderson's expectations regarding corporate ethical standards: rather top personnel at the accounting company actively impressed upon employees that they were to do all they could to keep Enron solvent, versus doing a competent and rigorous audit.
Sarbanes-Oxley Section 404 has also tried to make it easier for investors to evaluate the solvency and ethics of a company even before a formal audit is issued. SOX "requires public companies to disclose whether or not they have adopted a code of ethics applicable to their senior financial officers" to the public and "for companies listed on the New York Stock Exchange (NYSE), this requirement has been expanded to require listed companies to adopt and disclose on their websites a code of business conduct and ethics for directors,...
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