How Do You Know

How Do You Know

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ETHICS

In the hallways of accounting schools, jokes about “business ethics” as oxymoronic are pretty standard fare.

Nobodys laughing now.

The accountants at Arthur Andersen have shredded their way to a criminal conviction. WorldCom, Adelphia and Enron have imploded. On the stock market, investors have started adjusting for fraud, making an assumption about widespread corner-cutting that is driving prices down.

With each shell-game revelation, the assertion that there are only a few rogues in the accounting barrel becomes more suspect. Congress is crafting legislation to broaden oversight. And George W. Bush, the first president with an MBA, wants more jail time for culprits who cook the books.

In 1934, in the midst of the Depression, the securities acts began requiring public companies to have an annual audit. Only certified public accountants can do this. The auditor is charged with checking the companys financial statements and its adherence to generally accepted accounting principles. But critics say the prosperity of the 1990s seduced many auditors into accepting work as consultants, too. That puts the watchdog auditor on managements team. Arthur Andersen simultaneously earned tens of millions of dollars for its Enron audits, and tens of millions of dollars as Enron consultants.

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