Chapter 5. Accountants and Auditors

Accountants and auditors are an important part of the monitoring system. We rely on them to provide us with an accurate picture of a firm's business activities. However, to be effective monitors , they have to be credible. Unfortunately, public opinion of the accounting profession is at an all-time low. It's no wonder that Arthur Andersen's shredding important Enron documents was front-page news. Its eventual conviction on obstructing justice charges brings the "Big 5" accounting firms down to only four. Since then, news of one accounting scandal after another has dominated the media.

In response, the government has proposed many solutions for bringing ethics to the profession and trust back to investors. The proposals are full of new laws and regulating authorities. In looking at these possible solutions (which we do in Chapter 12), we find that they seem to be targeted at specific, perceived problems in the industry or at individual accountants. However, we feel that the accounting profession is a system of interlinked monitors, advisors, and evaluators . Designing solutions to fix any problems in the industry can only be effectively accomplished through the full understanding of this system.