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Chapter 13. Where Were the Auditors? Cou... > Red Flag 5: When an Auditor’s Record...

Red Flag 5: When an Auditor’s Record Suggests Lax Practices or Conflicts of Interest

When an auditor like Andersen starts to get a reputation for lax and conflicted practices, it may be time to worry if a company you are investing in uses them. Before the Enron, WorldCom, and Global Crossing blow-ups, the warning signs had been there at Andersen—big accounting scandals at its clients Sunbeam, Waste Management, and the Baptist Foundation of Arizona showed that there were problems in the firm. In June 2001, for example, six months before Enron’s collapse, Andersen agreed to pay a $7 million penalty, the largest the SEC ever imposed on an auditor, for faulty audits at Waste Management.


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