Incentives for Auditors to Tell the Truth

In an opinion piece for The New York Times, M.I.T economics professor, Michael Greenstone, examines the parallels between Enron, the corporate accounting scandals of the early 2000’s and the sub-prime mortgage crisis/Great Recession of present day.  Greenstone points out that the biggest similarity and ethical hurdle in both scenarios is the fact that auditors were hired and paid for by the very firms they were being asked to audit.  Naturally, this created an enormous conflict of interest on the part of the auditors to present truthful findings, while at the same time, feeling the pressure to please their clients.  Although stronger regulations proposed by the Public Company Accounting Oversight Board to reduce such scandals have been widely resisted by the accounting profession, some are suggesting that offering incentives to auditors to tell the truth would result in more positive change.  For details on what those incentives might look like, you can read Greenstone’s full article. 

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