Justice Department today announced the indictment of embattled accounting firm Arthur Andersen on one count of obstruction of justice relating to the collapse of former energy giant Enron Corp.
Arthur Andersen and Enron: Positive Influence on the Accounting Industry Todd Stinson Arthur Andersen and Enron - two names that will forever live in infamy because of the events leading up to and including the debacle of Decemberwhen Enron filled for bankruptcy.
These two giants in the utility and accounting industries, and known throughout the world, took advantage of not only investors, but also the government and public as a whole, just so that those individuals involved could illegally increase their personal wealth.
How could the backlash from the actions of the management of these two organizations have a positive influence in the accounting industry as a whole? However, this thesis will show how these changes actually are positive for the industry.
In order to do this safety measures that were in place at the time of the debacle will be shown, the actual events leading up to the downfall of Enron and Arthur Andersen will be discussed, the changes that have occurred since the fall through the present day will be given, the changes that appear to be on the horizon for the accounting industry will be shown, and finally how all of this will impact the accounting industry as a whole in a positive fashion will be made clear.
Safety Measures in place Prior to the events. Prior to the fall of Enron and their accountants, Arthur Andersen, there were many different types of safety measures in place to help protect the investors and the public as a whole.
The use of GAAP by accountants is standard protocol. An accountant follows these principles as a matter of daily routine. If they are not, then the business must show why they are not, and present rationale to demonstrate that what they are doing is both ethical and appropriate in their specific situation.
This leaves the field open to interpretations of what is appropriate for different situations. Since interpretations are quite subjective, the American Institute of Certified Public Accountants AICPAadded the stipulation that the treatment must also be applied consistently over time.
These rules are in place to make financial statements as accurate and reliable as possible. Enron took these rules and circumvented them to allow certain individuals within the company to make money from the increased investments from stockholders. Since these partnerships were, in most cases, wholly owned subsidiaries or partnerships, they should have been shown on the consolidated financial statements with Enron.
While GAAP guidelines relate to how financial statements are presented, GAAS, on the other hand, are standards set down specifically for the audit cycle of a company. Auditors, according to GAAS, are to remain independent in both fact and appearance.
Meaning that even if an auditor appears to have a connection with their client, even though they may not have, they should drop the audit immediately. They did not execute their duties independently because of the amount of revenue that Enron was providing them, not only in audit fees, but also in consulting fees.
SAS constitute the third important safety measure. These statements on auditing standards are produced to address current issues in the business of auditing.
The one that played a predominant role in this incident is SAS This statement also included the duty to find out if any of the management knew of any fraud being committed against the company, and added new fraud terminology to the representation letter produced by management.
This SAS was the first to clearly state that auditors had any responsibility to look for fraud. Up until it was expected that an auditor would report fraud if they happened upon it, but they had no responsibility to actively look for it. This one SAS along with all the others were supposed to protect the public interest.
However, in lieu of the lucrative fees being collected by Andersen from Enron these were also overlooked. In spite of all of these safety measures the wrongdoings at Enron went undetected for a long period of time.
The major problem was that of collusion. Therefore, when events like these transpire, changes are required in an attempt to prevent similar occurrences. History Chronology of Events The events that led up to the bankruptcy filing in December ofstarted long before anyone began to suspect fraud at Enron.
Andersen had two major audit failures just a few years apart and just a short time before Enron filed bankruptcy.Arthur Anderson Case Study Essay.
Arthur Andersen Contribute to the Enron Disaster AA was incapable to either spot or ignored Enron’s manipulation which allowed fraud to take place. March 4, Rise & Fall of Arthur Andersen, LLP Abstract Enron was a natural gas company that was formed in by Kenneth Lay.
By , Enron was the largest selling company of natural gas in North America. Case Study Assignment and AICPA Response 2 Case Enron Corporation and Andersen, LLP: Analyzing the Fall of Two Giants 1.
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Enron was heavily involved in the brokerage of speculative energy futures%(8). Nov 29, · The manager had denied service to a group of young men, but an alleged victim's dine-and-dash tweets emerged.
DIRECTORS’ CARE AND DUTY IN CASE OF BREACH. By V. Karthyaeni, Gujarat National Law University. 1. INTRODUCTION. Nature of Responsibility for Liability of Corporations. Case 1: Enron Corporation (Understanding the Essence of the Auditing Profession) AY CASE ENRON CORPORATION Synopsis Arthur Edward Andersen built his firm, Arthur Andersen & Company, into one of the largest and most.