Arthur Anderson Ethical Case Study

These crises along with their claim that their problem with the Enron audit was due to a few “bad partners” was merely the result of an unsound organizational structure along with policies and practices that the firm implemented. The unsound organizational structure of Arthur Andersen changed the motivation of employees within the firm and changes within the firm over the years one of which was the compensation of partners did not allow for integrity when work was being done for these public companies.

The audit of financial statements is mandatory for publically listed entities throughout the world. The auditor conducts various tests and based on the results forms an opinion on the truthfulness and fairness of the financial statements of the company and whether or not they are prepared in accordance with the financial reporting standards and are free from any material misstatement (Freedman, 2013). The purpose of auditing is to enhance the confidence of investors and to add credibility to the truthfulness of company 's true financial performance. However, there are some dos ' and don 'ts that an auditor must take care of. For instance, anything that threatens the independence of the auditor must be avoided as it adversely affects the truthfulness and objectivity of the opinion formed.

Arthur Andersen (AA) contributed to the Enron disaster when it has failed to the management by failing to have Enron establish and enforce its own internal control. There has been flaws to AA‘s internal control. There has been assumption that AA partners were too motivated by revenue recognition thus, overlooking several criteria when providing their services to Enron. Additionally, AA also recognised the retention of audit clients as vital and a loss of any clients would be disadvantaged to an auditor’s career. In AA internal control, the person who is able to make most of the decisions is the person who is most concerned about the revenue or losses of the client’s company.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

This event was unprecedented. The seventh largest company in the United States disintegrated from an annually profitable company in business for over sixteen years to a company claiming to be bankrupt over a period of a few months (O’Leary). Ultimately, fraudulent accounting and misstatements of revenues and debt obligations orchestrated by the CEO, CFO, and other senior managers were to blame. These revelations roiled stakeholder trust in public companies' financial reporting, accounting methodology, and overall transparency. In addition to Enron’s admissions, their accountant and auditor, Arthur Andersen LLP, was determined to have conspired to assist in the inflation of stated profits mainly by not disclosing Enron's money-losing partnerships in the financial statements (PBS). Arthur Andersen eventually surrendered the practices’ CPA licenses in the United States after being found guilty of criminal charges relating to the firm's handling of auditing for Enron

It highlights the importance of auditors applying sensitive and ethical judgments in all their engagements. Members have the responsibility to collaborate with each other to improve the art of accounting, as well as to maintain the public’s confidence. The auditor’s responsibilities are essential to an effective audit process because through planning, auditors should to communicate with each other, be very organized and discuss what and how to do things in order to serve the public. One of the most important parts in auditing is planning, for that reason responsibility is a must.

There is a problem that has been presented to Board of Directors that poses a danger to overall well being of the organization. The issue is one that could cause temporary as well as permanent damage to the relationship of the department and the community. The corruption is that which is believed to be taking place in the Oakland County Sheriffs department. The concern that Anderson has provided seems substantial and is something I felt the urge to share. Anderson is a hard working taxpayer, so he has an obligation to report misuse of funds, seeing that his hardworking money is potentially misused by the leaders.

An auditor’s role in an audit is very important. An auditor must be able to collect enough evidence to supports their finding, and also be on the lookout for fraud. Company’s may or may not know the law, but it is the job to know the law, and be able to educate and report findings properly. Since the Sarbanes-Oxley Act, there have been provisions that have directly affected auditors. This paper will include the details of the Sarbanes-Oxley Act, how ethics and independence have affected auditors, as well implementation of new standards based on the Sarbanes-Oxley Act.

My three-years of studying at HKU afforded me with the knowledge of financial accounting and now, as a senior, I am able to consolidate complex financial statements. However, after spending an internship working with auditors, I begin to realize the many potential pitfalls inherent in the auditor/client relationship. Facing a huge amount of pressure from their clients, who, of course, are paying the bills, auditors who should be independent commonly bend the rules to curry favor with clients and

“Just as character matters in people, it matters in organizations,” says Justin Schultz, a corporate psychologist in Denver. The Enron scandal had a big exposure in 2001 confirming the big secret to the increase in billions. In July 1985, Enron formed the merger of Houston Natural Gas and Omaha-based Inter North. The Enron corporation was an American energy company based in Houston Texas. The corporation’s catastrophe in 2001 signifies the biggest business liquidation ever, while also highlighting corporate America’s moral shortcomings. Along with Arthur Andersen, Enron was one of the largest audit and accounting partnerships in the world. Enron experienced the greatest audit

Disregarded Enron’s accounting misbehave and Misuse. CFOs and controllers hired by Enron company were former Arthur Andersen LLP executives; shredded all Enron’s documents, and Arthur Andersen LLP attorney altered documents related to its audit work for Enron. Arthur Andersen LLP has been handed the maximum penalty allowed under US law for its role in the collapse of Enron. Arthur Andersen LLP CPA License has

Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger

Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become

There were many issues in this case but one of the main issues that stood out was the fact that Andersen there was a conflict of interest because Andersen was the auditor and consultant for Enron. There are positive attributes when auditing and consulting at the same time for a client such as building a relationship with the client and promotes business; allows the auditor to become familiar with the clients’ business environment, and reduces the overall cost of the client. However, when a firm audits and consults for their client, the audit/consulting firm works so closely to the client that it makes ethical decisions very difficult to make and the auditors lose objectivity and become partial due to the conflict of interest.

The aim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company in the world. In order to maintain and increase