Audit Confidence Auditing and Investment Creative Writing

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This suspicion seems to have become more prevalent in the wake of the collapse of the dot-com sector and Enron. Long-term investors polled about earnings accuracy for companies in 1990 and 2000 indicated that trust in the audit process had slightly eroded, while 34.1% of respondents said auditors had become less independent over that period (Hodge 42, 45). This, in turn, contributed to the generalized crisis of confidence that accelerated the equity market's declines in the summer of 2002 (Ramirez 68) and eventually drove the adoption of the Sarbanes-Oxley regulatory environment.

So far, investors seem to have regained their trust in financial reporting; the recent market decline was motivated more by a crisis of confidence in the credit rating industry and a shift in the overall economy than by any focused concern that earnings had been systematically misstated.

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Still, trust takes work and time to repair, and investors' memories are long. Another Enron-style disaster may cause them to create alternative channels for certifying corporate results -- an expensive solution that could only make our capital markets less efficient and less transparent for global capital. Meanwhile, the auditing industry simply cannot afford to make another sacrifice on the scale of Arthur Anderson in order to repair its reputation. There are arguably too few big firms left as it is......

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