Accountants' Handbook Volume One: Financial Accounting and General Topics, Eleventh Edition

Chapter 7. FORGETTING OUR DUTIES TO THE USERS OF FINANCIAL REPORTS: THE LESSON OF ENRON

Paul Rosenfield, CPA

NEGLECT OF OUR DUTIES

Financial reports are consumer products. The American Institute of Certified Public Accountants (AICPAs) Special Committee on Financial Reporting knew that. It called its report Improving Business Reporting—A Customer Focus. Its members knew the users of the reports are the parties whom the whole endeavor of financial reporting should benefit. But the rest of us have forgotten that, if we ever realized it—so much so that Walter Schuetze, a former Chief Accountant of the Securities and Exchange Commission (SEC), felt he had to remind us of it, forcefully, recently:

We accountants are doing accounting for accountants' sake, not for use by investors, creditors, underwriters, analysts, boards of directors, and regulators who are the people that we accountants should aim to please.... Accounting should not be done for the benefit of accountants.^[203]

The 2001 Enron collapse, the largest bankruptcy in U.S. history, accompanied by the worst financial reporting breakdown in decades—if not the worst ever—and by the destruction of Arthur Andersen & Co., one of the five largest international Certified Public Accountant (CPA) firms, dramatized the neglect of our duties to our basic clients, our customers, the users of financial reports. Melissa Klein quoted Goldwasser as saying that "Andersen ... lost sight of their duties to the public."^[204] The Enron financial reporting ...