Business Risk and the Auditing Industry: The Enron Example

The auditing profession is a key reason that the United States enjoys the most well-developed capital markets in the world. Auditors provide shareholders, lenders, employees, customers, suppliers and policy-makers with assurance that the financial information provided by companies is reliable. During the past months, the auditing profession has received unprecedented attention. Andersen's audit of Enron is front-page news, a place where auditors seldom find themselves. As part of the fallout from the Enron-Andersen story, many …

…provide audits to excessively risky clients, then large, high-risk American companies would understand that delisting from the New York Stock Exchange or the NASDAQ was a possibility. To attract auditors and remain publicly traded, companies would rein in their affairs. This market discipline could have protected Andersen from its current debacle. We believe that auditors must re-examine their business practices of client selection and audit pricing if they are to re-emerge as a stronger profession.