Arthur Andersen: Failure to Report Accurately Essay

1214 WordsSep 7, 20115 Pages
Enron Corporation has been accused of cooking the books and overstating company profits in its financial reports. In addition, Enron’s trading business adopted mark-to-market accounting, which meant that once a long-term contract was signed, income was estimated as the present value of net future cash flows, even though in some cases there were serious questions about the viability of these contracts and their associated costs. Author Andersen provided both consulting and auditing services which created an inherent conflict of interest. On one hand, Andersen was auditing an Enron financial recording system and strategy based for the most part on the advice of its own consultants. Evidence eventually surfaced that some internal…show more content…
In addition, when news of Securities and Exchange Commission (SEC) investigations of Enron were made public, Andersen attempted to cover up any negligence in its audit by shredding several tons of supporting documents and deleting nearly 30,000 e-mails and computer files. James Bodurtha, Jr., argued that leading up to the downfall of Enron, "the primary motivations for Enron's accounting and financial transactions seem to have been to keep reported income and reported cash flow up, asset values inflated, and liabilities off the books." (Bodurtha, James N., Jr. (Article, Spring 2003) Arthur Andersen was accused of applying reckless standards in their audits because of a conflict of interest over the significant consulting fees generated by Enron. The auditors' methods of reviewing the financial transactions were questioned as either being completed solely based on receiving its annual fees or simply a lack of expertise in properly reviewing Enron's questionable accounting practices. The accountants looked for new ways to save the company money, including capitalizing on loopholes found in Generally Accepted Accounting Principles (GAAP), the accounting industry's standards. An Enron accountant revealed they attempted to aggressively use the GAAP document to their advantage and added that the large number of rules had created the opportunity to manipulate the weaknesses of the system, which

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