Enron Corporation and Andersen, Llp Analyzing the Fall of Two Giants

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The case of Enron Corporation and Andersen, LLP can be noted as one of the most infamous fraud scandals in US history. Investors lost millions of dollars and ruined the public’s trust. Enron was once the seventh largest public company in the United States and Andersen LLP was the world’s largest and most respected business organizations. Enron’s stock prices soared to approximately $100 to less than $10 in 2001. How did these two big giants fall into oblivion and what could have been done to avoid the disaster of these companies?

Enron Corporation was formed as the result of the July 1985 merger of Houston National Gas and InterNorth of Omaha, Nebraska. Their headquarters were located in Houston, TX. In its earlier years, Enron was a
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As a result, Enron filed for bankruptcy

To make matters worse, when Andersen found problems in the financial statements, they didn’t make corrections due to a conflict of interest. The concern was that if Andersen brought these problems to light, Enron would walk away and cost Andersen millions of dollars in the long run. Andersen contemplated dropping Enron as a client, but did not follow through with it. Because the audit and consulting was done at the same firm, it clouded Andersen’s judgment. Andersen employees in Houston began shredding documents and therefore brought obstruction of justice charges that destroyed the firm.

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.

According to PCAOB Auditing Standard No. 9, Audit Planning, Section 3), “Every man who

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