Avoiding another Enron:The Role of the External Auditor in Financial Regulation and Supervision
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Following the collapse of Enron, many questions have been raised as to why the UK has avoided its Enron.ii
Many commentators have considered whether this is due to the fact that the UK's system of financial
regulation relies more on a principles based system, which promotes more fairness in its application as
opposed to a rules based system.iii However, the crucial roles played by auditors in financial reporting and
the system of financial regulation and supervision have been overlooked to an extent. In view of a spate of
financial scandals such as those of Enron, Worldcom, Tyco etc, the US Congress acted swiftly by enacting
the Sarbanes Oxley Act on July 30 2002 with the aim of protecting investors and restoring their confidence
in the financial system.iv Amongst the provisions within the Sarbanes Oxley Act, the prohibition of non-audit
services by auditors providing audits at that particular time, is a main feature of the Act.v This provision not
only highlights the importance of the role of the external auditor, but also emphasizes the fact that
safeguards are essential in order to prevent that role from being abused. Much as there are lessons which
could be learned from the supervisory approaches adopted by various jurisdictions, there are also
considerations on whether these jurisdictions could benefit from the measures implemented by US regulators
and accounting bodies in the aftermath of Enron.
Keywords
HG Finance