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Why We Must Close The Accountant Revolving Doors And Rotate The Accountants

Enron's financial department was chock-full of former Arthur Andersen accountants. Congress should ban auditors from working for clients for at least two years following an audit. In addition, audit firms should be rotated at least every 7 years, so companies benefit from a fresh look at their books.

Even though the Enron matter is still under investigation, a June 2001 SEC settlement order concerning Andersen's auditing of Waste Management, Inc, provides ample explanation of the need to close the revolving door. In the case, Arthur Andersen agreed to settle charges without admitting wrong, that it had issued "materially false and misleading audit reports on Waste Management, Inc.'s financial statements for the period 1993 through 1996." Andersen paid record civil penalties of $7 million in the settlement. According to the SEC:

"Andersen regarded Waste Management as a "crown jewel" client. Until 1997, every chief financial officer and chief accounting officer in Waste Management's history as a public company had previously worked as an auditor at Andersen. During the 1990s, approximately 14 former Andersen employees worked for Waste Management, most often in key financial and accounting positions."

-- SEC Administrative Proceeding File No. 3-10513 In the Matter of Arthur Andersen LLP http://www.sec.gov/litigation/admin/34-44444.htm

Further Reading On Auditor Independence And Oversight

Proposed Federal Legislation To Establish Accounting Independence and Oversight

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