Accounting Standards and Regulations

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During the year 2002, the accounting profession was subjected to a series of highly publicized scandals. For example, it was discovered that the prestigious Arthur Andersen firm had played a role in the fraudulent reporting practices that led to the bankruptcy of the Enron Corporation. Andersen accountants had helped the company hide its losses, and had shredded important documents that were relevant to the case. In June 2002, Andersen was found guilty of obstructing justice, was fined $500,000, and was sentenced to five years probation (Sachdev, n. p.). Also during 2002, the telecommunications firm WorldCom was found guilty of fraud as a result of having “improperly accounted for more than $3.8 billion of expenses” (Klein, 2002, p. 1). Other companies too, such as Tyco, Qwest, and Adelphia Communications, all became involved in accounting- related scandals.
These various scandals had a negative impact on public views regarding the accounting profession. As stated in an article in the CPA Letter, the high-profile business failures of Enron and others “called into question the effectiveness of the profession’s self-regulatory process as well as the effectiveness of the audit to uphold the public trust in the capital market” (Landmark accounting reform, 2002, p. 1). Many people began arguing for stricter regulations in the accounting industry. The Securities and Exchange Commission (SEC), for example, offered some proposals for changes in the industry. In particular, the SEC expressed concern for the idea of increasing the independence of auditors who work with major corporations. To enhance this type of independence, the SEC “proposed rules that limit the length of time key personnel can work on a company’s audit, restrict what outside services auditors can perform for…...

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