Enron/Andersen scandal shreds more than records.

• Position: Economic Outlook

Douglas Shackelford is associate dean of UNC Chapel Hill's Kenan-Flagler Business School and runs its master of accounting program. He agreed to talk about the profession in light of the scandal involving Houston-based energy trader Enron and its auditor, Chicago-based Arthur Andersen, which endows his position as the Andersen Distinguished Tax Professor in Accounting.

BNC: What will be the fallout for the profession in North Carolina?

Shackelford: If Andersen doesn't survive, all those jobs are up for grabs, its people will go to different firms, and there'll be a lot of change.

And if it's not fatal to the firm?

The business community in North Carolina is such that people aren't getting an audit from Arthur Andersen. They're getting an audit from the Andersen partner in Charlotte -- or Raleigh or Greensboro or wherever -- whom they know very well. And they know he wasn't in Houston shredding documents. I guess there could be some publicly traded companies with a person on their board who would say, "It makes it look like something is wrong with us if we have those guys as our auditors."

What risks do complex audits like Enron's present for auditing firms?

One is so-called audit risk. The job of the auditor is to certify that the financial statements are prepared in accordance with generally accepted accounting principles. And if they are not and the auditing firm fails to find that and people get hurt as a result, the firm can be sued. The other risk is the risk of association with a bankruptcy or a scandal.

What can firms do to reduce those risks?

With the audit risk, that's what the whole business is about. An audit is a statistical sampling of certain accounts. If those are good, you're going to feel confident that the rest of the picture is OK. When we train auditors here, we're training them to develop that skill to know, in some sense, how little work can you do to gain a high enough assurance that the audit is OK. With the risk of association, there are two things you can do: You can walk away from jobs, or you can stay with those jobs but charge a lot higher fee than firms are currently charging.

Is it a conflict of interest for a firm to do consulting work for a company it audits?

I don't think this is the problem. Even the big consulting jobs aren't big enough to justify the risk of the audit going bad.

You don't think there's pressure on auditors to go easy so firms can get or keep consulting business?

Every partner has his...