Enron officially filed for bankruptcy protection with bankruptcy listed assets of 49.8 billion U.S. dollars and it become the largest bankruptcy in U.S. history enterprise.
The New York Stock Exchange officially announced that it removed Enron stock from the Dow Jones Industrial Average component and stop transactions related Enron stock .At this point, the Enron building collapse in period of two months with a burst of energy giant fell to the ground.
Arthur Andersen, as Enron's auditor for many years, provide Enron audit services, at the same time it also provide Enron a large number of non-audit services. non-audit services fees were also higher than the audit fees. Because of this, people questioned the fact that Arthur Andersen failed to find the Enron's fraud. (Coleman, Jerry and and Sheldon,2004)
January 10, 2002, Arthur Andersen and the Enron publicly acknowledged that they destroy the audit-related files, which further confirmed the people's questions. Enron Scandal turn into scandal for the audit.
The third day after Enron declared bankruptcy, the former "Big Five" immediately issued a joint statement and pointed out that it is the current financial reporting system’s limitations caused Enron problem.
The statement caused an unprecedented resonance. After Enron, people began to think about the United States accounting standards and the legislation mechanisms.
In the great debate of accounting standards caused by Enron, many people think protecting the interests of investors is a great task ,and accounting standards is so important to the task, should non-governmental institutions still have the right to decide the standard-setting.
U.S. Securities and Exchange Commission acknowledged that they have over-rely on the work of the Financial Accounting Standards Board and failure to discharge of duty to ensure that accounting standards in line with goals established by the federal securities laws. they will work more actively ,such as expansion the funds sources for the Financial Accounting Standards Board, reduce dependence on donor funds from accounting profession, as well as taking greater participation in the work of the Financial Accounting Standards Board agenda.
Meanwhile, the U.S. Securities and Exchange Commission think the accounting standard-setting power should still be referred to the non-government organizations as non-governmental agencies have the irreplaceable advantages compared to the Government because of the flexibility, timeliness, is rich in research resources, less subject to political pressure and so on..
According to the "Securities Law" and "Securities and Exchange Law" ,U.S. Securities and Exchange Commission (SEC) has the power to affect the behaviors of auditors, it have the right to conduct investigations and handle cases on the securities Market, but it are not responsible for the daily supervision of auditors.
Before the Enron scandal, U.S. CPA system adopted the "fragmented system", the qualifications and supervision of Certified Public Accountants and accounting firms is different between state government and federal government. State government decided the general eligibility, and federal government decided the securities regulation. Thus the regulatory power is greatly offset and dispersed. In the audit business of the securities market, The United States Institute of Certified Public Accountants undertake the self-regulation the same peer review and other measures, but industry associations are not given the right to regulate the Stock auditing. (Healy and Krishna,2003)
After the Enron scandal, "Sarbanes-Oxley Act" stipulates that an independent, non-governmental oversight body should be established. Public Company Accounting Oversight Board (PCAOB) is responsible for the monitoring the audit firms of listed companies.
