The Enron collapse has ruined countless lives. A well-known corporation files for bankruptcy protection. The Securities and Exchange Commission and a congressional committee are asked to investigate. It is revealed that masses of documents are being shredded. And then, as night follows day the cry goes out: where were the auditors?

The answer, from the testimony of senior Arthur Andersen staff, is they were busy back at their Houston ranch shredding documents as well. This latter revelation about the night-shift at Andersen is the story that has attracted most attention in Europe.

The matter has, however, clouded other issues, among them the enormous risks involved in energy trading, off-balance sheet finance, corporate management responsibilities to shareholders, and the statutory duties of public auditors.

Clearly, the damage is so enormous that Congress will have to consider what regulatory response is needed. All the pointers suggest that the auditing profession will be its target. But on what kinds of issues will the outcome depend? Three things need to be separated in any discussion of this affair:

1: the actions of Andersen staff after they became aware that Enron was likely to implode;

2: the quality of Enron audits conducted by Andersen in recent years; and

3: whether a different audit regulatory regime might have prevented this debacle.

The first issue is the most straightforward. It may be difficult pinpointing the moment when Andersen became aware of the potential for Enron to implode. It will be presumed, as of that moment, Andersen knew the conduct of its Enron audits would come under scrutiny and that Enron documents had to be preserved.

But, even if the documents destroyed were not audit-related, their destruction prompts conspiratorial interpretations that every sane auditor recognises. It is not surprising, in testimony to Congress, senior Andersen executives sought to place blame squarely with partner Mr David Duncan, stating he acted alone in making the decision to destroy documents.

Given Mr Duncan has pleaded the Fifth Amendment, establishing the facts may be difficult, but even if the "rogue employee" accusation sticks to him, it won't help Arthur Andersen much in court.

Though somewhat less clear- cut, the quality of recent Andersen audits of Enron can and will be determined. Auditing is a meticulous craft, and guidelines governing standards of performance, quality of evidence and the detailed record-keeping necessary to support an opinion are very clear.

If Andersen conducted its audits negligently, there will be penalties - and shareholders may have legal recourse.

The third issue - the regulatory response - is likely to be the most controversial, as it will affect the entire auditing profession. As a rule, regulatory intervention is considered only where less intrusive "self-regulating" mechanisms are not available or not working.

Could what happened at Enron have been prevented had the structure of modern auditing been different? Auditors will say no and become agitated by what they perceive to be the ease with which shareholders and the public alike associate business failure and audit failure - the presumption that if a business fails, the auditing must have been inadequate.

Auditors have a point: the collapse of Enron was almost certainly not due to one event - even the audit. Statutory audit is not a form of surveillance, however much shareholders might wish it was. But acknowledging that corporate collapse usually stems from multiple causes is not to say that our audit model cannot be improved.

Audit failures are on the rise and the stakes are a lot higher than they were when the foundations of our present audit legislation were laid in 1963. One does not have to be a conspiracy theorist or believe in a corrupt auditing profession to recognise that the relationship between auditors and company management is unequal and unstable.

Auditors have a statutory duty to report to shareholders but they are appointed by company management and view management as the "real" client. Auditors can become compliant and have a cosy relationship with management and, therefore, sometimes appear to lose critical faculties.

One partial answer to this problem of independence is to fix the term of appointment of statutory auditors - for example, for a period not exceeding five years. In other words, legislate for a system of auditor rotation. This change would not have to be introduced for all companies - private companies could be exempted.

The Republic has an opportunity to show the way, as we have a relatively small population of listed companies and commercial semi-state companies - fewer than 120.

The impact on the auditing profession would be modest. The "market size" would remain the same, there should be no net decline in overall fee income and no reduction in staffing levels.

Auditors may claim that the costs of changing auditors every five years will impose excessive costs on companies (audit set-up costs e.t.c). Interestingly, that's not what they tell companies when audits are put out to tender!

Clearly, nobody would claim that Enron would still be in existence if we had auditor rotation. But it is at least likely that shareholders would have heard about its problems earlier. The Minister for Enterprise, Trade and Employment, Ms Harney, has an opportunity here: she should grasp it.

Dr McHugh qualified as a certified accountant with the Dublin office of Deloitte. He is head of the Business School at Trinity College, Dublin