The media frenzy on Enron seemed to come from nowhere. Suddenly, every major daily and broadcast news program was talking about Enron, accounting procedures, and the role of auditors. The result has been scrutiny on our profession, and a severe blow to the public's confidence in the capital markets. With all the noise, it is easy to forget: all the facts are not yet in. Still, as members of the profession, we need to understand who built this house of cards and what made it tumble? What are the ramifications for the financial community and, more specifically, for the accounting profession? Here is a brief rundown of the facts that are known, the investigations that are proceeding, and the steps already being taken to develop solutions that can help restore the public's faith in the financial reporting system.

What Happened?

On December 2, less than a month after it admitted accounting errors that inflated earnings by almost $600 million since 1994, the Houston-based energy trading company, Enron Corporation, filed for bankruptcy protection. With $62.8 billion in assets, it became the largest bankruptcy case in U.S. history, dwarfing Texaco's filing in 1987 when it had $35.9 billion in assets.

The day Enron filed for bankruptcy its stock closed at 72 cents, down from more than $75 less than a year earlier. Many employees lost their life savings and tens of thousands of investors lost billions.

Who is to Blame?

That is what at least a half-dozen Congressional Committees, the SEC, the U.S. Justice Department, and an investigative panel appointed by Andersen LLP are trying to find out. Several parties may have contributed to this national tragedy - Enron top management and audit committee, their outside law firm, the auditors at Arthur Andersen, investment advisors, and the environment which encouraged the company's highly questionable practices. The challenge for investigators is to sort out the criminal activity (such as the alleged shredding of subpoenaed documents at both Enron and Andersen, possible insider trading, and knowingly falsifying financial documents), from the flaws in the system that allowed Enron to hide debt and losses.

What Steps Are Already Being Taken

• The Securities and Exchange Commission (SEC) has already announced plans to create new organizations outside the structure of the AICPA to oversee auditors of publicly held companies. A disciplinary board would be created to accelerate the investigation of alleged audit failures and provide more transparency, and the current program of firm-on-firm triennial peer reviews for auditors of publicly traded companies would be replaced by an annual quality monitoring process for the largest firms, administered by a new organization. This new body would have expanded authority to monitor compliance with SEC practice standards and to refer instances of noncompliance to the disciplinary board. Both new entities would have a majority of public members and operate outside the profession's existing self-regulatory structure.

• In response to these proposals by the Chairman of the SEC, the members of the Public Oversight Board (POB) announced their intention to terminate the Board's existence no later than March 31, 2002. Currently, the POB oversees the peer review, quality control inquiry, and other activities of the SECPS and the standard setting efforts of the Auditing Standards Board.

• Reversing a longstanding position, the AICPA has announced it will not oppose limits on providing certain non-audit services to public company audit clients.

• The AICPA and the 1,200 firms that are members of the AICPA's SEC Practice Section are implementing improved audit standards for detecting fraud, as well as new measures for deterring fraud such as expanded internal control procedures for management, boards, and audit committees.

• The AICPA has participated in interviews with every top national newspaper and dozens of local ones, and have appeared on virtually every national cable, broadcast and radio business program. It is also providing State Societies and individual AICPA members with communications assistance to help them address the ramifications of the Enron collapse with their clients, employers and colleagues. During the first quarter of this year, the AICPA will also be announcing its support of more extensive changes in its self-regulatory structure.

• The AICPA also strongly believes that there are a number of additional reforms that need to be enacted in order to deter accounting abuses and avoid an Enron-type disaster in the future. These include providing a new and improved financial reporting model suitable for companies of the Information Age for which earning assets aren't accurately valued by traditional measures.

The AICPA and state CPA societies are working hard on both the national and local levels, with members of Congress, the SEC, and other parties, to fulfill the profession's commitment to the public interest, and regain the public confidence in the nation's CPAs.