Andersen Enron Fiasco Prompts Look at Peer Reviews
The recent news of Enron Corp.'s need to restate financial statements dating back to 1997 as a result of accounting issues missed in Big Five firm Andersen's audits, has caused the Public Oversight Board to decide to take a closer look at the peer review process employed by public accounting firms.
In the peer review process, accounting firms examine one another and publish opinions that assure investors that audits performed by the firms comply with accounting standards. Each of the Big Five firms, Andersen, Ernst & Young, Deloitte & Touche, PricewaterhouseCoopers, and KPMG, is reviewed by another Big Five firm, and none has ever issued a negative peer review report on one of its brethren.
"How can you have peer reviews and still have these kinds of failures?" asked Charles Bowsher, chairman of the Public Oversight Board, referring to Andersen's audits of Enron. "There appears to be little reason for the public to have faith in Andersen or the peer review process."
Deloitte & Touche performs the peer review on Andersen.
The Public Oversight Board, which was created in 1977 to oversee the accounting industry's self-governance structure, will address the issue on December 4.
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Did Andersen Also Do Internal Audit work for Enron?
I am curious whether Andersen also performed internal audit services for Enron? If so, this is also something that should be reviewed by the POB.
What other Services were offered by Anderson
It would be interesting to see if Anderson's independence was compromised do to the offer of other consulting services. Accountants should be independent.
BIG FIVE PEER REVIEW IS A JOKE
The SEC has determined that Big 5 firms aren't independent in many cases, yet they issue audit reports. The very foundation of an audit opinion is independence. Without independence, the quality of audit work and audit procedues is meaningless. So, how do the Big 5 pass peer review, huh?
Where is the AICPA leadership?
The Enron case has appeared almost daily in the Wall Street Journal, yet I have yet to see it mentioned at all by Ms. Eddy or anyone else within the AICPA leadership. Obviously bad audits by our premier accounting firms are not as important an issue as the proposed global credential. What a joke. Anyone involved with the Enron case deserves to have the SEC come down on them hard.
How Did They Pass?
I agree with Robert Kalb's concern over independence and auditors. Unfortunately, what appears to be an independence problem does not prevent a firm from passing its peer review as long as the firm complies with professional standards. If the standards permit both auditing and consulting, the firm can pass its peer review.
To me the issue is what is going to be done to the standards relating to independence and auditing. If the SEC makes the standards tougher, will that filter down to the rest of us who don't do SEC work? That will depend on whether the AICPA changes the independence standards for non SEC engagements.
PHG