Auditing issues in Enron case

2114 Words Oct 29th, 2004 9 Pages
1 Auditing issues in Enron case

Independent

Needed for the Houston office of Andersen, an audit partner that understands the role of being a "public watchdog" with "ultimate allegiance to the creditors and shareholders" . Arthur Anderson abandoned its roles as independent auditor by turning a blind eye to improper accounting, including the failure to consolidate, failure of Enron to make $51million in proposed adjustments in 1997, and failure to adequately disclose the nature of transactions with subsidiaries . Another example is Lord Wakeham joined Enron as a non-executive director in 1994 and also sat on Enron's audit and compliance committee. In addition, Andersen also provides internal audit service to Enron, which in fact impact
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When Enron's stock price subsequently fell, the SPE's value also fell, triggering the Enron guarantees, which guarantee payments in turn apparently further reduced Enron stock value, triggering additional guarantees.

Other guarantees would eventually buffet Enron. In the case of Braveheart, CIBC World Markets made a $115.2 million investment in return for a promise of nearly all of Enron's profit from the venture for 10 years. What's more, Enron agreed to repay CIBC its investment, if Braveheart failed to make money.

The role guarantees play in distributions to creditors

Any time an enterprise guarantees the indebtedness of another in material amounts, the enterprise must disclose the nature and amount of the guarantees in the notes to the financial statements. When Enron's SPEs sought credit, the lenders often required that Enron guarantee the debt. On several occasions, Enron guaranteed amounts that various SPEs borrowed by promising to pay cash or to issue additional common shares to repay the debt if the market price of Enron's common shares dropped under a set amount or if Enron's bond rating fell below investment grade. While the notes to Enron's financial statements disclosed guarantees of the indebtedness of others, Enron did not mention that its potential liability on those guarantees, which shared common debt

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