Pipe Dreams: Greed, Ego, And The Death Of Enron

The goal in the life of a college student is graduating and getting the dream job in the career field that is chosen. To achieve this goal takes more than just having the knowledge and heart for the career; it also takes technical skills to be able to perform the tasks. The Auditor: An Instructional Novella stretches beyond the standard textbooks to reveal the principles and practices of auditing as they are in the real world. The book consists of a few key aspects such as: targets students’ natural curiosity about the field of accounting, supports traditional teaching tools, shapes the potential challenges that awaits public accountants.

Auditor, an instructional novella written by James K. Loebbecke, tells the story of Jack Butler, a man from the San Francisco Bay area, who goes to college, majors in accounting, and goes to work for a large accounting firm referred to as “The Firm.” The story is loosely based upon the real world experiences of the author, and is written to give students a look into the world of public accounting that goes beyond a textbook. The Auditor not only gives students a chance to follow Jack Butler’s journey up the company ladder at The Firm, but also reiterates the relative importance of conventional lessons learned in school.

Arthur Edward Andersen built his firm, Arthur Andersen & Company, into one of the largest and most respected accounting firms in the world through his reputation for honesty and integrity. “Think straight, talk straight” was his motto and he insisted that his clients adopt that same attitude when preparing and issuing their periodic financial statements. Arthur Andersen’s auditing philosophy was not rule-based, that is, he did not stress the importance of clients complying with specific accounting rules because in the early days of the U.S. accounting profession there were few formal

Enron: The Smartest Guys in the Room Based on my observations of the movie, I think that the major cause of the downfall of Enron was quite simply greed and pride. Once the company started growing and the money was pouring in none of the top executives wanted to stop the train. When Jeffrey Skilling was hired it was under the pretense that a mark to marketing accounting system would be used. This system would basically allow Enron to project long term earning on multiyear contracts as current income. Once Skilling got the door opened the earnings reports could be manipulated at will.

High risk accounting, inappropriate conflicts of interest, extensive undisclosed off-the-books activity, excessive compensation – these are some of the headings of the report prepared by the U.S. Senate's Permanent Subcommittee on Investigations titled "The Role of the Board of Directors in Enron's Collapse." (Permanent Subcommittee on Investigations, 2002) In February, 2002, Enron's former Chief Executive Officer Jeffery Skilling had testified before members of the Senate Commerce, Science and Transportation Committee that Enron was a financially sound company the day he resigned in August 2001, just months before the company's financial implosion. But the Enron debacle has, as the Houston

Enron, a company which originated in Huston, Texas, was one of the largest American energy trading corporations in the nation. Although it was one of the most well known companies, it was also one that crashed and burned the fastest, shocking many people when it did. Not only did it end fast, the company caused quite a scandal which is still being discussed and reviewed in today’s world. Enron’s bankruptcy scandal was so widely known because of the many people who associated themselves with the company and worked with it. When it finally did end in 2001 the corporation was a wreck. This paper will analyze the business of Enron, the impact which Enron had on the economy, the causes of the rise and fall, the effects of de-regulation, and an analysis of the collapse of Enron. Also in this essay will be a look at the accounting practices of Enron, who Arthur Anderson was, and what his role was in Enron. The essay will finally take a look at just what happened to Arthur Anderson after the collapse of the company to which he hurt.

In the case of Enron’s collapse, many would blame the external auditor’s collusion with the management, the aggressive accounting policy it had adopted to manipulate its earnings or the Special Purpose Entity (SPE) it had created as a sham to conceal its debts. However, everything began from an internal environment with weak controls.

Auditors face greater battles than deciding how to record debits and credits, or attempting to balance their stakeholders’ interests. The most important struggle occurs in the mind of every individual auditor, regardless of rank or status. The issue at hand involves an auditor’s duty to practice professional skepticism. Although it may seem easy to remain skeptical as an auditor, in reality, they face numerous barriers to fulfilling this duty. These barriers include but are not limited to: challenging high rank individuals both within the audit firm and at the client company, time constraints, budget constraints, fatigue and personal health concerns, lack of personal knowledge or skill, desire to please certain parties, and intimidation from others. First and foremost, this discussion will elaborate on both the time and budget constraints to professional skepticism, as they tend to go hand in hand. Following, the second section of this discussion will highlight a personal experience of applying professional skepticism throughout a winter quarter auditing internship. Third, as described in PCAOB Audit Staff Practice Alert No. 10, the PCAOB plans to explore meaningful ways to enhance auditor’s professional skepticism. Therefore, contained in section three is a proposal which provides justification for an implementation that may enhance the application of professional skepticism throughout the auditing profession. In culmination of discussing these examples,

Enron began as an energy company in 1985. After the deregulation of oil and gas in the U.S., Enron lost its’ exclusive rights to natural gas pipelines. The CEO, Kenneth Lay then hired a consulting firm to reinvent the company in order to make up lost profits. He hired Jeffery Skilling, who was in banking, specifically; asset and liability management. Under the topic “The Beginning Presages the End”, C. William Thomas (2002) writes: “Thanks to the young consultant, the company created both a new product and a new paradigm for the industry—the energy derivative.” When Skilling’s plans were very profitable, he was promoted to COO of the trading division. With this success, he hired Andrew Fastow; who became CFO Chief

Public accounting firms have long played a role in convincing the public the authenticity of the corporates’ financial statements. However, the public started to become skeptical about accountants’ reliability when the Enron scandal occurred. In October 2001, SEC started an investigation against Enron for improper accounting practice. According Sherron S. Watkins, the former vice president for corporate development, Enron failed to disclose complicated deals with its partnerships to inflate the stock price. In a report by Enron’s law firm, Arthur Andersen, the accounting firm that was in charge of auditing Enron, was involved and failed to report the partnership transactions, which resulted in the collapse of Enron.

The downfall and implosion of Enron Corporation that was caused by extremely large amounts of debt incurred and hidden from its stakeholder’s through complex schemes of illegal partnerships called “special-purpose entities.” As a result of this, thousands of people lost their retirement savings which they had invested in the Enron stock. Investors lost billions of dollars when the stock collapsed.

An American energy company based in Houston, Texas in 1985, was the world’s leading electricity, natural gas, communications and paper companies before it bankrupted in 2001. Its annual revenues rose from 9 billion dollars to 100 billion dollars. At the end of 2001 Enron’s stock price dropped from $90 to $1 per share, which caused shareholders lose $11 billion and finally resulted in $586 million in losses. It was one out of the five largest audit and accountancy partnerships in the world which undoubtedly was the biggest audit failure.

The Enron Scandal is the bankruptcy of the Enrol Corporation, one of the America’s biggest company, that suddenly happened in 2001. This happened quite unexpected, as the company has officially expanded rapidly over the last decade, decimating its value and reaching the 7th position in the ranking of the most important US multinationals.

Mentioning the name Enron to scholars and practitioners in accounting will always shift their thoughts to ethical accounting practices. This owes to the fact that the failure of organizations like Enron, WorldCom and Adelphia, led to changes in the standards of practice in accounting. Consequently, several authors completed studies on the collapse and demise of Enron. For instance, Moncarz et al., (2006), Cunningham and Harris (2006), and Dembiski et al., (2006) made publications on the topic in question. According to Moncarz et al., (2006) Enron’s failure represents the biggest company failure in the history of America. This is highlighted by the fact that Enron had revenue of US $101 billion and an estimated size of 21000 employees by 2000. However, Dembiski et al., (2006) reveals that the organization collapsed in 2001 owing to unethical accounting practices within the organization. This paper discusses how Enron led to increased emphasis on corporate codes of conduct by analyzing the

Auditors have requirements and public expectations. Auditors are required to have a high level of technical competence, free from bias, and concern for the integrity of financial reports. Once serving the public, the public expects auditors to find fraud, require accounting principles, and be independent from management. It is important for auditors to be independent from the client company, otherwise they will lose public trust. Users believe that an auditor who own shares in a client company might mislead them into believing that the company condition