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Auditor Oversight: Proposals for New Regulator

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Publication Date: April 2002

Publisher(s): Library of Congress. Congressional Research Service

Series: RS21173

Topic: Business (Accounting)

Abstract:

The collapse of Enron Corp. in late 2001 put the obscure topics of corporate accounting and auditing under intense scrutiny. Through the first half of 2001, Enron's public financial statements showed steady profits and fast-growing revenues. In fact, the company was using dubious accounting maneuvers to conceal both serious business and investment losses and the size of its debt burden. That these questionable accounting methods were not exposed and rejected by Enron's outside auditor has led to calls for reform in the regulation of corporate financial reporting. Uncertainty in the stock market has risen, as investors fear the discovery of "other Enrons."

Reforms proposed by Congress and the executive branch focus on oversight of the independent auditor, whose responsibility (in the broadest sense) is to certify that a corporation's accounting statements reflect its true financial condition. This report provides basic background information on current regulation of auditors and summarizes alternatives now under consideration. See CRS Report RS21135 for an overview of Enron-related financial issues. The report will be updated to reflect new legislative and regulatory developments.