8.

Why do audit partners struggle with making tough accounting decisions that may be
contrary to their clients position on the issue? What changes should the profession make to
eliminate these obstacles?
The audit partners struggle with making tough accounting decisions that may be contrary
to their clients position on the issue as they would fear losing the revenues generated by ad on
services such as consulting from their clients. Prior to the Sarbanes-Oxley Act of 2002, partners
looking to maximize services they could provide to clients, namely consulting services, created a
conflict of interest in the independence in the core relationship external auditor and clients. Thus,
standards were created with Sarbanes-Oxley Act 2002 to greatly limit the types of add on
services external auditing firms can perform. When the Sarbanes-Oxley Act enacted, this lack of
independence was taken into account to reduce the types of add on services to greatly reduce the
partners hesitancy in making tough accounting decisions.
The Securities and Exchange Commission (SEC) should makes changes to eliminate the
obstacles by enacting their rules that required external audit firms to rotate primary audit
engagement partners of clients after approximately five to seven years. This kind of rule was
enacted to prevent too close of relationships between external audit firms and client
management, which may lead to independence issues. Furthermore, reporting requirements by
external auditing firms to their clients audit committees were mandated to include:

Critical accounting policies used

Alternative treatments of financial information within GAAP that have been discussed

with management
Ramifications of the use of such alternatives and the treatment preferred by the

accounting firms
Other materials written communications between the auditor and management

9. What has been done, and what more can be done to restore the public trust in the
auditing profession and in the nations financial reporting system?

To restore the public trust in the auditing profession and in the nations financial reporting
system, the government must enacted the strictest accounting reform in history and launched the
Sarbanes-Oxley Act. The enactment of the Sarbanes-Oxley Act of 2002 was an effort to make the
changes. It is given in the case, Enron and Arthur Andersen both the external audit firm and
management made unethical decisions which cause public trust to erode, these sweeping changes
were necessary. Going forward, enacted laws including the requirements of the Sarbanes-Oxley
Act of 2002 should be periodically reviewed to determine if they have been adequate. In cases
where further unethical behavior leads to misstatement of financial statements which may
mislead the investors and other impacted parties, studies should be performed to determine of
additional laws or standards should be enacted.