Abstract
The paper begins with an example of the accounting treatment afforded an Indefeasible Rights Use (IRU) Swap by Global Crossing. The case presents a typical example of ways in which accounting firms contributed to the ethical scandals of the early 21st century. While the behavior of Arthur Andersen, the accounting company in the case, might have met the letter of the law, we argue that it violated “the spirit of the law,” which can be discovered by looking at (1) the legitimate goals of a company which give it its ethical direction and (2) the responsibilities of the accounting professionals who serve the company and the general public. Those professional responsibilities are determined by looking at the legitimate function those professionals fulfill in the economy. A further claim is that Andersen and other accounting firms are motivated to abandon the responsibilities derived from pursuing their proper goals by falling into the trap of accumulating wealth for its own sake. We argue that the ultimate responsibility of internal auditors is to develop statements that give as reasonably true and fair a picture of the financial situation to any user having a claim to that knowledge. Further we argue that the major responsibilities of the external auditor are: first, to be responsible to the using public for evaluating financial statements and declaring that they represent a fair picture of the financial situation of a company, and second, to be a watchdog of financial markets and call into question irregular practices that would distort those pictures. Such due professional care requires the auditor to exercise “professional skepticism”: an attitude that includes a questioning mind and a critical assessment of audit evidence. The paper concludes by giving particular examples of how Arthur Andersen LLP failed to meet those responsibilities.
Similar content being viewed by others
References
Aristotle (1962) ‘Politics’, R. McKeon (Eds) The Basic Works of Aristotle New York Random House in cooperation with Oxford University Press
Baker, C. R. and R. S. Hayes: 1996, ‘Regulating the Public Accounting Profession: An International Perspective’, http://panopticon.csustan.edu/cpa96/pdf/baker2.pdf (accessed on June 8, 2004), p. 8.
Bogle, J. C.: 2000, ‘Public Accounting: Profession or Business?’, October 16, New York University, New York, www.cpaindependence.org (accessed on June 8, 2004).
Briloff, A. J.: 1999, ‘The ‘Is’ and the ‘Ought’’, Accounting Today, September 6–26, 6ff.
Morgenson, G.: 2004, ‘Global Crossing Settles Suit on Losses’, The New York Times, March 20, Late Edition-Final, p.1, col. 2.
F. Partnoy (2003) Infectious Greed: How Deceit and Risk Corrupted the Financial Markets Henry Holt and Co. New York
American Institute of Certified Public Accountants: 1997, AICPA Statements on Auditing Standards, SAS no. 53 (‘The Auditor’s Responsibility to for the Detection of Errors and Irregularities’) and SAS no. 82 (‘Considerations of Fraud in a Financial Statement Audit’), www.aicpa.org (accessed on June 7, 2004).
Turner, L. E.: 2001, ‘Independence: A Covenant for the Ages’, June 28, International Organization of Securities Commissions, Stockholm, Sweden, www.sec.gov/news/speech/spch504.htm (accessed on May 19, 2004).
A. Reahi-Belkhauli (1992) Morality in Accounting Quorum Books Westport, CT
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Duska, R. The Good Auditor – Skeptic or Wealth Accumulator? Ethical Lessons Learned from the Arthur Andersen Debacle. J Bus Ethics 57, 17–29 (2005). https://doi.org/10.1007/s10551-004-3818-1
Issue Date:
DOI: https://doi.org/10.1007/s10551-004-3818-1