DEVELOPMENT OF AUDITING
In recent years the integrity of the auditing profession has been called into question, especially in the case of auditor independence. Perhaps the most spectacular of these was the Enron-Andersen scandal which saw the collapse of auditing giant Arthur Andersen and sent tremors throughout the auditing industry.
In 2001, Andersen was the fifth largest auditing firm in the world and had a reputation for outstanding auditing integrity based on a history of some 100 years in business. In contrast by the end of 2002 it had all but disappeared from the auditing radar. There were definite red flags being raised in regards to the standard of the audits being conducted at Andersen; the company was involved in lawsuits relating to two other clients, Waste Management and Sunbeam in 2001. Andersen was also in charge of the audit for WorldCom which was another major scandal that raised questions on auditor independence.
It was however Andersen’s relationship with Enron, in particular their actions in shredding documents and deleting of emails in the thousands including documentation relating to the Enron engagement prior to the US Securities and Exchange Commission (SEC) investigation into Enron, that was to be its downfall. The industry could not allow such a blatant disregard of auditor independence to go unpunished and Andersen was barred from conducting and reporting on SEC-registered companies, thereby ending its auditing practice. (Soltani, 2007, pp. 556-562)
Whereas the Enron/Andersen scandal related to definitive action taken by Andersen in conspiring with Enron a later scandal involving HealthSouth Corporation and Ernst & Young raised other problems with auditor independence. Again issues arose with auditor independence this time whe ...