Among those most jostled in the wake of the Enron bankruptcy are leading accounting firms. Enron itself manipulated the books to appear more profitable than it was, but the accounting giant Arthur Andersen put its seal of approval on those books.
Andersen and the four other major US accounting companies, anxious to fend off the controversy, are now issuing calls for stronger standards and updated procedures in auditing publicly held companies. Their suggestions make good sense, such as broader financial disclosure rules and more rigorous regulation.
But the changes may have to go even further to see that the accounting industry lives up to its obligation of assuring the investing public that businesses are financially sound. And that public has never been larger, with a majority of Americans having a stake in stocks and bonds.
Major questions revolve around the incentives that have become lodged in the industry. With accounting firms receiving much of their revenue from consulting contracts with the same companies whose books they audit, is there a tendency to go easy? Does the revolving door between accountants and corporate executive suites have the same effect?
It's good that the industry itself appears ready to strengthen standards. But Congress, as it takes up probes of the Enron failure, should step up the pressure for reform. It should certainly look into beefing up the federal and state agencies that are responsible for keeping an eye on auditors.
Accounting is an area that most people are more than happy to leave to the experts. But it's also an area that can affect people's lives directly. Just ask everyone who has now lost money on Enron. The light of public scrutiny needs to shine there.