As with other spectacular business failures, the collapse of Enron has drawn attention to corporate financial reporting and to the accounting profession. While the issues involving Enron are broad and complex, they are likely to command the attention of corporate financial managers, CPAs, regulators, and corporate executives in coming months.

 

According to Schiff, who joined FMN Online for an interview this month, "people are questioning the role of internal audit in terms of creating value, in terms of working in a more effective way to create economies within the company to pick up problems early. It’s the early warning system; if the company’s under attack in terms of practices that inevitably will damage the company’s reputation and perhaps financial future," explains Schiff. "I think the time has passed where internal auditors can really just take comfort in the programs they follow."

 

Unfortunately, says Schiff, today's automated audit -- in an environment where internal auditors must always have their eyes and ears open to identify risk even before the independent auditors do their review -- has "lulled to sleep many former thinkers." The culture that says "get it done fast" and "don't ask too many questions" is damaging the audit process.

 

"I think the time has passed where internal auditors can really just take comfort in the programs they follow," Schiff adds.

 

From the perspective of independent auditors, CPAs and accounting firms, Schiff believes there is a valuable lesson in the Enron failure.

 

"If they aren’t providing something there’s a demand for in the marketplace, meaning an incremental assurance or reduction of risk, what are they there for? If we stop believing they are providing some incremental value, we really have something to worry about as a profession," Schiff says.

 

The accounting profession has something to gain from examining where it has gone wrong. Turning Enron into a positive means taking a hard look at what does and does not work and how to learn from past mistakes in order to create a more effective and efficient process.

 

 

This article is adapted from  Auditing Practice -- Enron: What Fueled Its Collapse? The program is available for CPE credits through FMN Online. For more information about FMN subscriptions and how to earn CPE credits, visit SmartPros Knowledge.