Given the assumption that the Powers Report excerpts included in Exhibit 3 are accurate, one could plausibly argue that Arthur Andersen violated several of the ten generally accepted auditing standards, including the following: (Independence (second general standard): by becoming too involved in Enron’s decisions for important accounting and financial reporting treatments, the Arthur Andersen auditors may have forfeited some degree of objectivity when they reviewed those decisions during the course of subsequent audits. (Due professional care (third general standard): any violation of one of the other nine GAAS effectively results in a violation of the catchall due professional care standard. (Planning and supervision (first fieldwork standard): a reliable quality control function, including proper audit planning decisions and effective supervision/review during an audit, should result in the identification of problematic situations in which auditors have become too involved in client accounting and financial reporting decisions. (Internal control evaluation (second fieldwork standard): one could argue that given the critical and seemingly apparent defects in Enron’s internal controls, Andersen auditors failed to gain a “sufficient understanding” of the client’s internal control …show more content…
In fact, many parties have advocated an even more extreme measure, namely, that independent auditors continually monitor and report on the integrity of their clients’ financial disclosures. In the current environment when information is distributed so readily and widely to millions of investors and other decision makers, the validity or utility of independent audits that focus on discrete time periods has been challenged. As recent history has proven, by the time that auditors issue their reports on a client’s financial statements for some discrete period, the “horse may already be out of the barn”—the “horse” in this case being the damage to investors and other parties resulting from oversights and other misrepresentations in the given financial statements. This problem could be cured, or, at least, mitigated to some extent, by requiring auditors to provide real-time disclosures of potential problems in their clients’ financial