UTD Professor Writes That Enron Scandal Has Significant International Implications

The Enron scandal has significant international implications and the fallout from it eventually may reach to the far corners of the earth, according to an article by University of Texas at Dallas (UTD) International Accounting Professor Adolf Enthoven in the latest issue of the World Bank’s Transition Newsletter. Dr. Enthoven is director of UTD’s Center for International Accounting Development.

In recent weeks, the investigation into the collapse of Enron has revealed that irregular business practices by the company – once the seventh largest corporation in the United States – may have played a crucial role in California’s energy crisis last year. Shareholders, employees, retirees and others have lost more than $60 billion in the Enron bankruptcy, the largest in U.S. history.

Enthoven writes that the damage from the Enron debacle does not stop at the U.S. borders, however. He says it also is impacting countries overseas that are trying to develop capitalist economies, especially because developing countries “often look to the U.S. accounting and regulatory frameworks as models to be emulated.”

Criticizing both Enron and its outside accountants and auditors for their deceptive practices, Enthoven argues that self-regulation and peer review of accounting practices often has proven to be ineffective in the U.S.

“If the necessary regulations and safeguards had been in place, this could have been prevented,” he writes in the page-one article. “It will undoubtedly result in stricter economic, financial and accounting regulations, especially for capital markets.”

Enthoven also predicts that government oversight of both the accounting profession’s self-regulation and the rules for corporate disclosures are likely to be greatly strengthened, presumably by the U.S. Securities and Exchange Commission. However, he warns that “pure government” oversight is neither desirable nor effective because it would be susceptible to becoming politicized. Instead, he calls for oversight of the U.S. accounting profession’s self-regulation by international accounting bodies such as the International Federation of Accountants and the International Accounting Standards Board.

To avoid “Enron” type situations from developing abroad, Dr. Enthoven advises transitioning countries to take care to install well-functioning financial, accounting and auditing frameworks conducive to the development of their capital and financial markets. They also should be sure that the proper financial, accounting and legal infrastructure is in place before embarking on full deregulation, he says.

Enthoven works as a consultant with the U.S. State Department, the Soros Foundation, the World Bank, the International Monetary Fund, the Organization for Economic Cooperation and Development and the Russian Ministry of Taxation. He has organized and led courses in Russia, the Baltic countries, Ukraine, Kazakhstan and Moldova that have trained more than 1,000 accountants in the basics of international accounting principles.