I am amazed at the frenzy over how to prevent future Enrons. The solution is so simple—establish “real” auditor independence.
The SEC’s reporting requirements of a “change in auditor” should be eliminated. The commission should limit an audit firm to a one-year engagement only. Too often, the auditor and the client form a “common-law” marriage after a long engagement. In such a situation an auditor places the client (“spouse”) before the public, because tengo famiglia (an Italian expression meaning “the family comes first”). If the company was prohibited from engaging the auditor for five years, there could be no marriage and the public would come first. Most of all, auditors would know a subsequent auditor would review their work, thus creating the ultimate control. Every audit would be peer reviewed, and the public would not have to rely on bureaucrats at the SEC, with the effectiveness of the U.S. Postal Service, to protect them. The auditor would have an enormous incentive for excellence in performing audits, and the issues clouding the allegiance to the public would be eliminated.
Once the audits of public companies are addressed and no longer make headlines, we should address governmental audits. Taxpayers lose far more of their personal wealth each year than the Enron employees did, due to poorly performed audits that serve the government rather than the public. You will never see Congressional hearings seeking justice for taxpayers, so it is really up to our profession to make a difference.
Joseph Tomanelli, CPA
Mahwah, New Jersey