Tax Guru – Ker$tetter Letter

Response From CBA

I received the following response from the Calif. Board of Accountancy. Having worked on audits with some of the Big 8 (what it used to be), I know that audits of organizations in multiple states utilize local auditors whenever possible. Does this mean that Enron had no offices in California?

What is surprising to me is the lack of a proactive approach to this problem. Arthur Andersen’s defense to their conflict of interest will be that “everyone else is doing it.” While this is very true, that does not make it proper. I can still recall my college auditing class (taught by a recently retired Arthur Andersen partner), where we discussed the very issue of independence. Owning stock in the client and being involved in the management decisions were both considered big No-Nos.

KMK

X-Lotus-FromDomain: BOARDOFACCOUNTANCY

From: msantaga@cba.ca.gov

To: Kerry Kerstetter

Date: Thu, 7 Feb 2002 12:39:15 -0800

Subject: Re: How did AA get away with its conflict of interest?

X-RCPT-TO:

In response to your February 5, 2002 email, please note that Mr. Morgan did not provide consulting services. He provided bookkeeping services that impaired his independence under AICPA Rule 101-3.

With regard to Enron, to date the California Board of Accountancy has not identified that any California licensees are involved; however, the Board is monitoring the Enron matter.

Sincerely,

Michele Santaga

Enforcement Analyst