As a top partner at an accounting firm, I would put in place a high powered internal team that would have sweeping powers and would be responsible to study past failures, recommend and implement changes and more importantly, conduct a random or systematic 2nd round of auditing on team/partners/clients. (The Demise of Arthur Andersen, 2002)
2. Forbid team members and partners to work with clients with insider connection: Another major factor that was responsible for the lapse in adhering to the accounting standards was the fact that one/multiple members of the auditing team had professional and/or personal interests in Colonial Realty. This seriously diminished the willingness of the auditor to evaluate the financial reports with strict objectivity.
3. Closely monitor clients that are taking accounting as well as consulting services: Accounting firm offering consulting services derive significant synergies from the consulting services. Among others, cross selling of services helps accounting firms increase their revenues and profits. Additionally, rapid change in business environment resulted in new forms of transactions, and hence an auditing firm needed more than just accountants - they needed computer professionals, lawyers and management professional to understand and audit these transactions. However, offering both the services had one critical drawback- expected conflict of interests. In effect, this turned into a case where one arm of a company, the auditing arm, would evaluate the other arm of the same company- the consulting services. This arrangement poses significant conflict of interest. So, as a partner, I would propose to set up an independent team within the organization that will closely monitor deals where the client is offered both consulting as well as auditing services to minimize breach of regulations.
b) In 2000, the Securities and Exchange Commission proposed new regulations that limit consulting work by accounting firms. This proposal was not passed by Congress. Do you think that the legislators were trying to act in the public interest when they failed to pass this proposal Explain.
The traditional accounting firms in general and Arthur Anderson LLP in particular had a fledging consulting business arm by 1990s. These consulting divisions traced their evolution to auditing teams that helped clients increase their operational efficiency and technical control. However, these consulting services, then, were largely perceived as a small component of the overall auditing services offered by the accounting firms. However, the advent of computer and subsequent adoption of computer by companies resulted in new business dynamics. These fast paced, growth oriented business dynamics offered more stand-alone consulting opportunities. Additionally, the process of auditing shifted from a stand, generalized auditing process to highly complex processes that required, in addition to traditional accountants, management professionals, computer engineers and strategists. In short, consulting became an integral part of most of the accounting fi