What Can Be Done To Further Improve The Independence Of Auditors In

What Can Be Done To Further Improve The Independence Of Auditors In What Can Be Done To Further Improve The Independence Of Auditors In The UK â€" Essay Example > What should the U. K do to enhance Auditor Independence Auditing plays a crucial role in business, government and our national economy (Boynton et al. , 5). It is the “process of examining the assertion or representation of another party and providing assurance on the fairness and reliability of the information in accordance with given standards” (Giove, 1). Independent auditing is a process involving the “independent examination of, and expression of opinion on, the financial statements of an enterprise” (Power, 4). The 2001 Enron disaster in the U. S. was the result of rogue trading, deliberate concealment of debts off balance sheets and other financial irregularities carried out by Enron in connivance with its auditing firm, Arthur Andersen LLP (Beams, 2002). The Enron scandal was immediately followed by the Worldcom disaster: in June 2002, Worldcom disclosed that during 2000 and 2001, it had been guilty of capitalising (instead of rightfully showing as expenses), a sta ggering amount of $ 3.8 billion (Boynton et al. , 3). These scandals were so massive that it shook public confidence to a degree rivaled only by the collapse of banks and utility organisations during the Great Depression in the United States. Just as it happened after the Great Depression, the after-effects of the Enron (and to a lesser degree, Worldcom) debacles marked a watershed not only in the U. S. but also in the whole world (Beams, 2002). Business standards are expected to be reliable. As the Financial Times (February 2002) put it: “Trustworthy business standards are among the most important social capital the developed world possesses” (Beams, 2002). It is the fundamental right of every shareholder to expect accuracy and reliability in the publicised financial reports of the companies they invest in; this crucial factor governs the shareholders’ relationship with the company, because such reports are the only sign of the company’s financial (especially its investmen t) health and progress, thus making it the foundation on which the shareholders take decisions about investment in the company (Hermes. co. uk). Shareholders as well as others (investors, bankers, bonding agencies and other creditors) depend on the company’s audited financial reports to make certain that they have access to accurate and reliable information when initiating or enhancing business with that company (Boynton et al. , 5). The need to assure shareholders, investors and other interested players about the accuracy and reliability of the company’s published financial reports represents the main reason why companies have their accounts checked by an independent auditor. High profile fraud cases like those involving Enron and Worldcom not only drastically reduce the public’s high regard of the auditing profession in general, but also results in erosion of shareholder and other players’ confidence as they begin to doubt the authenticity of the reports published (Herme s. co. uk). Since 1998, the global auditing world has been ruled by 5 auditing firms (called the Big Five) that have the capability and international network to audit the largest public companies in the world. They are PriceWaterhouseCoopers (PwC), Klynveld, Peat, Marwick, Goerdeler (KPMG), Ernst Young (E Y), Deloitte Touche (D T), and Arthur Andersen (AA) {Europa. eu, 2002}. What was originally the Big Eight (1970s to 1989), that also included Arthur Young Co., Coopers Lybrand, Haskins Sells and Touche Ross, was reduced to the Big Six (1989-1998) when Haskins Sells merged with Touche Ross to form Deloitte Touche. The last major merger involved Price Waterhouse and Coopers Lybrand, who formed PriceWaterhouse Coopers, thereby trimming the Big Six to Big Five (1998-2002). Arthur Andersen was struck off the Big Five in the wake of the Enron scandal in 2002, and there are now only the Big Four audit firms (Wikipedia).