Enron Scandal May Change How Our Kids Learn Auditing

Article excerpt

Byline: Denise Raleigh

I took accounting in college, but didn't like it much.

Though I got to use my $50 calculator, which performed all four basic math functions, pondering how to handle the depreciation schedule of an IBM typewriter didn't captivate me.

When I started working for a Fortune 500 company, I experienced an accounting epiphany. No longer was it just a focus on the mundane balancing of figures. How and when we accounted for things directly contributed to how our division looked to the corporate muckety-mucks and stockholders. Reporting profits, losses and the costs of agreements meant a great deal.

But I am still no accounting expert. As details of this Enron collapse continue to unfold, I checked with people training the next generation of business leaders to see what impact the case is having.

Joan Der, professor of accounting and auditing at North Central College in Naperville, anticipates that the Enron case will be a significant factor when teaching future auditing professionals.

Auditing involves understanding the underlying business, then making sure the financial reporting matches the transactions in accordance with generally acceptable accounting principles, Der said.

Auditors conduct interviews and compare books with previous years. They don't look at all transactions, but rather scrutinize representative samples.

"Whatever the company did, it needs to be reported fairly," Der said.

The auditor's job is not to evaluate the soundness of business transactions, but to ensure actions are reported accurately in accordance with accounting standards, Der said. The analysis does require the auditor to use judgment.

It's too early to tell what the problem was with Enron or its auditors, Der said.

"The facts are still fluid," she said.

Der predicts that generally acceptable accounting principle requirements might be strengthened as a result of the Enron breakdown, and that people might pay more attention to what companies are actually doing outside of their financials.

Past landmark cases have led to more stringent requirements on auditors in different areas of auditing, Der said. Auditors check physical inventories because of the 1941 McKesson and Robbins case. …