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Avoiding Another Enron : The Role of the External Auditor in Financial Regulation and Supervision

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  • Ojo, Marianne

Abstract

Following the collapse of Enron, many questions have been raised as to why the UK has avoided its Enron. Many commentators have considered whether this is due to the fact that the UK's system of financial regulation relies more on a principles based system, which promotes more fairness in its application as opposed to a rules based system. However, the crucial role played by auditors in financial reporting and the system of financial regulation and supervision have been overlooked to an extent. In view of a spate of financial scandals such as those of Enron, Worldcom, Tyco etc, the US Congress acted swiftly by enacting the Sarbanes Oxley Act on July 30 2002 with the aim of protecting investors and restoring their confidence in the financial system. Amongst the provisions within the Sarbanes Oxley Act, the prohibition of non-audit services by auditors providing audits at that particular time, is a main feature of the Act. This provision not only highlights the importance of the role of the external auditor, but also emphasizes the fact that safeguards are essential in order to prevent that role from being abused. Much as there are lessons which could be learned from the supervisory approaches adopted by various jurisdictions, there are also considerations on whether these jurisdictions could benefit from the measures implemented by US regulators and accounting bodies in the aftermath of Enron.

Suggested Citation

  • Ojo, Marianne, 2006. "Avoiding Another Enron : The Role of the External Auditor in Financial Regulation and Supervision," MPRA Paper 1147, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1147
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    More about this item

    Keywords

    Enron; collapse; auditors;

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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