Remember Enron and WorldCom? Let’s Not Do That Again.

Opinion|Remember Enron and WorldCom? Let’s Not Do That Again.

More than two decades ago we blew the whistle at Enron and WorldCom, industry giants whose spectacular falls revealed two of the largest accounting fraud scandals in American history. We know the destruction that fraud causes. We lived through it. We witnessed how unchecked power, collusion at the highest levels and manipulated financial statements can bring down iconic companies, destabilize markets and vaporize billions of dollars and thousands of jobs overnight.

That’s why we are raising our voices now against a proposal by Republican lawmakers to eliminate the Public Company Accounting Oversight Board, a watchdog that Congress created in the wake of those scandals to protect against accounting fraud and audit failure. The rollback of this hard-won safeguard would unleash additional risk into this highly uncertain economic environment and make the next corporate disaster more likely.

The collapse of Enron and WorldCom exposed a broken system for verifying financial honesty. Before the P.C.A.O.B., accounting firms essentially policed themselves. That system failed in part because they often earned far more money selling advice to the same clients than they did from auditing. As a result, firms were sometimes incentivized to go easy on the auditing side — by reducing testing, lowering standards or putting more junior staff members on complex audits, for example — to secure their more lucrative consulting business. This conflict of interest, combined with auditing methods of the time that weren’t strong enough to uncover elaborate, high-level fraud schemes, created an environment that allowed enormous deceptions to go unnoticed.

At their peak, Enron and WorldCom employed more than 100,000 people combined and operated in over 40 countries. Enron pioneered the trading of energy derivatives, reinvented the natural gas industry and earned Fortune magazine’s title of America’s Most Innovative Company for six consecutive years. WorldCom was the dominant player in internet infrastructure and a telecom leader that reshaped the industry, once boasting the largest acquisition in corporate history and the fifth most widely held stock. Both had powerful chief executives and celebrated chief financial officers who were beloved by Wall Street.

The cost of their deceit was staggering. More than 50,000 employees lost their jobs and the companies entered bankruptcy, leaving investors and creditors with catastrophic losses. At the time, these were the largest bankruptcies and civil settlements in corporate history.

In response to these and other failures, Congress came together in 2002 to pass the Sarbanes-Oxley Act, which created a strong framework to deter and detect fraud. The P.C.A.O.B. was a cornerstone of that reform: an independent, nonprofit, nongovernmental regulator charged with overseeing public company audits and restoring trust in financial reporting. The bill enjoyed overwhelming bipartisan support and passed almost unanimously in the House (423-3) and in the Senate (99-0).