Although the Congressional hearings on Enron are being panned in some quarters as publicity stunts, they are producing some interesting testimony from academics. For example, accounting professor Roman L. Weil says,
In the current environment, it's heresy to suggest that we do not need to forbid auditors from also providing consulting services. Despite this pressure, I suggest to the Committee that mandatory auditor rotation, with auditors chosen and beholden to the audit committee, will solve the conflict of interest problem.
What he is saying is that auditors need to (a) be chosen by the audit committee, which represents shareholders, rather than by management; and (b) be rotated every five years, so that they know that their actions will be scrutizined by another pair of eyes.
Discussion Question. Of the various ideas that have been proposed to prevent future Enrons, which ones do you think would be most effective while costing the least to implement?
