Enron Bounded Ethicality Is a Essay

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The result would mean a reduction of consulting income for AA as Enron would no longer be a customer. By whitewashing the audit, AA positioned itself to gain more lucrative consulting work from Enron.

The bounded ethicality came from a clear source. This type of relationship was common during that era, and all of the major accounting firms profited from it. Thus, there was strong incentive for auditors to compromise their ethics. This is not to say that it was stated outright that AA's auditing team should whitewashing their findings about Enron. What it means is that over the years auditing processes emerged that basically took the companies at face value, so that the audit procedure itself was not particularly rigorous. Moreover, auditing firms would be hesitant to use strong language in the wording of their report and they were in the habit of running their findings past the management of the company they were auditing prior to publishing the audit.

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All of these processes emerged in a climate of bounded ethicality, where Anderson and other auditing firms seemed genuinely unable to see the inherent conflict of interest that existed. This was just the way that business was done in their industry, and since investors and regulators did not seem to have a problem, there was no need to give these practices due critical evaluation. That is the classic definition of bounded ethicality because as we saw when Enron imploded that there was massive conflict of interest at work, and the audit procedures were unethical. The Sarbanes-Oxley Act was passed in response to this in order to remove this conflict of interest and thereby remove the source of the bounded ethicality that was afflicting the auditing profession......

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