AUDIT LAW

Accounting scandals - From the print edition of THE ECONOMIST The dozy watchdogs

Some 13 years after Enron, auditors still can’t stop managers cooking the books. Time for some serious reforms

Dec 13th 2014 | NEW YORK 

"Ever since a 1969 Supreme Court case found auditors liable for failing to detect fraud, accountants have feared litigation from shareholders. Those concerns were vindicated when Arthur Andersen, a peer of the Big Four, was brought down by lawsuits related to the Enron scandal."

"In 2005, the Supreme Court ruled that shareholders must prove a direct causal link between a defendant’s activity and a declining stock price in order to claim damages. Despite the auditors’ abysmal performance before the financial crisis, legal claims against them have been modest: this April an arbitration council ruled that EY was not at fault in Lehman Brothers’ bankruptcy."