Enron Is Responsible For The Crisis Of Confidence

859 WordsJan 23, 20164 Pages
K1.1 - 1 Enron – Enron is partially responsible for the crisis of confidence, because they committed the fraud via the special purpose entities. Because of the three percent rule, Enron was able to put lots of its liabilities onto those off-balance sheet entities. Also, Enron did not have adequate financial statement disclosures. Many of the top employees at Enron were able to “realize” an extraordinary profit within matters of a couple months because of the fraud. Additionally, Enron abused the mark-to-market accounting method for its long-term contracts. All of these fraudulent activities caused Enron’s profits to be overinflated. Andersen – Although Enron committed the fraud, Andersen allowed Enron to get away with it. An audit firm has to be independent from their client and act in the best interest of the public. For this reason, I think that Andersen was the most responsible for the Enron crisis. Andersen could have declined continuing their relationship with Enron as their client, considering some Andersen representatives did not agree with Enron’s “aggressive” accounting and financial reporting decisions in the early months of 2001. Andersen also assisted Enron in restructuring some of the SPEs so they would still be considered unconsolidated entities. Andersen not only audited Enron, but they also went beyond the scope of what the quality audit should entail. It was also telling when personnel in the Houston office destroyed documents related to Enron and

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