Who oversees the audit firms?

Who oversees the audit firms?

Here I would like to note that as four government agencies and six committees of the US Congress investigated and assessed the US giant Enron failure, it’s important to recognize that the failure of Enron contributed to the failure of Arthur Andersen (one of the big five accounting firms) as well as to the thorough investigation of other companies related to Enron or that were audited by Arthur Andersen. I have learnt that the system of controls against fraud and cooking the books by these large companies involves auditors, corporate boards, analysts, ratings agencies, investment bankers, corporate lawyers and various accounting standard-setters — who manage and regulate the US financial markets.

I have also learnt that once the confidence in the gate keepers like auditors diminished after the failure of Enron and Andersen the whole US financial system needs a reform and the article found in New York Times on January 17, 2002 speaks about the issue of control over the controllers who audit firms represent.

Any reform is a rather tough task to launch and the reforms aimed to improve corporate audits and aimed to minimize conflicts of interest are especially a tough task (NY times, 01.17, 2002). So far, according to the article the USA was not successful in persuading the major accounting firms to separate their corporate auditing business practices from their corporate consulting business practices. Also the US community was not able to assure the accuracy of the operations within the audit firms and therefore I personally believe it urges the US government to pass some regulations about control of the activity of any audit firm by another.

I have also learnt that the companies face the pressure from the Wall Street analysts about earnings expectations in order to stay afloat and not witness their stock plummet. At the same time the auditing firms oftentimes do not notice some deliberate inaccuracies that the companies make to boost their revenues in order to retain the corporate loyalty to the given auditing firm and to receive lavish commissions and contracts on the consulting services.


“Who Audits the Auditors? By Arthur Levitt. New York Times. January 17, 2002.



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