Question

The accounting scandals of the early 2000s led many people to question the legitimacy of: ratio analysis as a means of evaluating the performance of a firm. relying on the recommendations of tax accountants to find ways of reducing the taxes owed by a business organization. publishing financial information about a firm on the Internet. allowing an accounting firm to do both consulting and auditing work for the same company.

Answer 1

Answer:

The accounting scandals of the early 2000s

led many people to question the legitimacy of:

allowing an accounting firm to do both consulting and auditing work for the same company.

Explanation:

1) Enron and WorldCom fell from grace during the scandal.  And Sarbanes Oxley Act of 2002 was introduced to regulate the practise of auditing, which was before self-regulated.

2) People felt that accounting firms were getting so much revenue from consulting that they did not pay much attention to their auditing work.

3) They also felt that the consulting relationship was jeopardizing their responsibilities and commitments as independent auditors.

4) Since they were involved in consulting and offering management services, they paid a lip service to their main responsibilities and directly compromised their positions as verifiers of the truth and fairness in the presentation of financial statements.

5)  According to Paul Krugman of The New York Times,  “the Enron debacle is not just the story of a company that failed; it is the story of a system that  failed.  And the system didn’t fail through carelessness or laziness; it was corrupted.”  People felt that the corruption arose from the performance of these separate services by the same auditing personnel and firm.