Audit and Party Transactions

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April 21, 2003 The Enron Collapse Was Enron’s collapse due to a failure in the standard setting process? Why or why not? The Enron collapse was by no means due to a failure in the standard setting process instead, the collapse resulted from Enron’s fast growing rate and its highly “creative” management team who at one point just lost control of the business. The company stopped doing what it was known for doing best, energy generations, and began exploring and operating in a new and unknown business segment and a new industry. The standard setting process was indeed effective; however management kept finding ways to go around the system. Finally, the collapse can also be attributed to management integrity and Andersen’s failure to detect…show more content…
• The SPEs financing should have been based on each SPEs own borrowing capacity and leverage levels. Offering Enron’s guarantee to creditors clearly eliminated the equity capitalization requirements for non-consolidation. The company should have had measures in place, which require additional approvals in regards to offering loan guarantees. How much reliance should Enron’s corporate BOD have placed on the Andersen in understanding the company’s accounting decisions and policies? Without a question the BOD should have placed a high degree of reliance on Andersen, which at the time was one of the most prestigious worldwide accounting firms. The auditors should have known the kind of accounting taking place in Enron. In my opinion, Andersen knew, at least to some extent, the company’s financial condition. However, Enron was already too deep under water that blowing the whistle so late would have created problems for Andersen as well. According to the case, on 02/05/01, Andersen held internal meeting during which it addressed the company’s accounting from and oversight of the LJM partnership. Andersen never discussed these concerns with the Audit and Compliance Committee. Although the BOD has its faults, it should have been able to rely on Andersen’s work. When should auditors destroy documents and information that

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