The, Enron, And Enron

Niedermeyer, and Presha Niedermeyer. They performed surveys using internal auditors of public companies and external auditors from large and small firms. The survey questioned how auditors made ethical decisions, and they also wanted to see how internal auditors answered versus how external auditors answered. The result of the surveys showed that there was no difference in decision- making between internal and external auditors in the aspect of how major the effects unethical decisions on victims would be. The only difference between auditors in this study was how they make decisions on what is right and what is wrong. It appears that auditors that work for the Big Four have a stronger sense to determine what is right or wrong as opposed to the other auditors working in large and small firms. The study suggests that each firm adopts policies and special training to combat these

Arthur Andersen (AA) contributed to the Enron disaster when it has failed to the management by failing to have Enron establish and enforce its own internal control. There has been flaws to AA‘s internal control. There has been assumption that AA partners were too motivated by revenue recognition thus, overlooking several criteria when providing their services to Enron. Additionally, AA also recognised the retention of audit clients as vital and a loss of any clients would be disadvantaged to an auditor’s career. In AA internal control, the person who is able to make most of the decisions is the person who is most concerned about the revenue or losses of the client’s company.

The word “fraud” was magnified in the business world around the end of 2001 and the beginning of 2002. No one had seen anything like it. Enron, one of the country’s largest energy companies, went bankrupt and took down with it Arthur Andersen, one of the five largest audit and accounting firms in the world. Enron was followed by other accounting scandals such as WorldCom, Tyco, Freddie Mac, and HealthSouth, yet Enron will always be remembered as one of the worst corporate accounting scandals of all time. Enron’s collapse was brought upon by the greed of its corporate hierarchy and how it preyed upon its faithful stockholders and employees who invested so much of their time and money into the company. Enron seemed to portray that the goal of corporate America was to drive up stock prices and get to the peak of the financial mountain by any means necessary. The “Conspiracy of Fools” is a tale of power, crony capitalism, and company greed that lead Enron down the dark road of corporate America.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

Arthur Andersen LLP is one of the “Big Five’ accounting firms. The firm was accused of shredding documents and getting rid of e-mail messages that pertained to their audit of Enron. This occurred after finding out that the Securities and Exchange Commission had begun an investigation of Enron’s accounting. The firm was

In October 2001, Enron Corporation which was one of the world major energy, commodities and service companies with claimed revenues of nearly 111 billion dollars during 2000 collapsed under the weight of massive fraud in that it has become largest bankruptcy recognition in the US economy. Enron’s earning report was extremely skewed that losses were not represented in their entirety, prompting more and more wishing to participate in what seemed like a profitable company. After collapse of Enron, Auditor independence has become a social issue that weather auditor has to be independent or not. In addition, while auditing must consider matters objectively with dispassion, there were still doubts whether it implemented well. Further, there has been much speculation about the need for the mandatory rotation of auditors or audit firm rotation to warn false accounting between audit firm and client. By examining Enron case, this essay will discuss about advantages and drawbacks of the mandatory rotation of

According to Pompper (2014), “incidents of high-profile deception over the past” four decades “have threatened the reputation of the … accounting function” (p. 131). For instance, an investigation was conducted into the financial audit and reporting process after the savings and loan banking crisis in the 1980s (Pompper, 2014). In addition, the criminal convictions of executives and bankruptcies of Fortune 500 companies such as Enron and WorldCom in the turn of the century motivated Congress to pass the Sarbanes-Oxley Act (SOX) in 2002 to strengthen regulations within the accounting profession (Whittington & Pany, 2014). As a result, the SOX introduced provisions that changed the accounting function, such as the establishment of the Public Company Accounting Oversight Board (PCAOB) and other major elements; however, the SOX regulations subsequently resulted in consequences to its compliance.

Over the last two decades the consulting practices within the Big Four accounting firms saw a variety of changes take place. This began when the accounting world was faced with multiple scandals around the turn of the century, which prompted the Sarbanes-Oxley Act (SOX). SOX mandated that public accounting firms could no longer provide both audit and consulting services to the same client. This forced the firms to brainstorm new ways to comply with the laws and standards, and overtime they created innovative ways to adhere to regulations. We examine the issues leading up to the new regulations, the Big Four firms’ reactions to the new regulations, and how consulting rebounded after SOX. We also analyzed what the consulting line of service at the Big Four will look like in the future and discuss why the Big Four firms want to preserve a presence in the consulting business. Overall, our research suggests that the consulting sector is lucrative, and the firms need revenues from non-audit clients in order to continue to grow their business.

Assigned auditors were more than aware of the accounting misrepresentation of financial statements, overstating net income. Still instead of walking away from the client and resign, Andersen in pursuing short-term goals stayed with the company and moreover played by the Giant’s rules. More and more accounting firms at that time started to provide consulting services along with auditing to the same companies which always indicates a conflict of interests. Auditors are the guardians and rules players where consultants are giving advices and showing how to avoid some accounting oversights. Andersen also in order to make good profits stepped on the side of combining two contradicting to each other services. Waste Management had lots of former Arthur Andersen employees which also led to close ties between two companies. That situation undoubtedly led to inability to turn down fraudulent accounting practices Waste Management was exercising at that time for a long period of time.

Lindberg and Beck (2002) claim that auditor independence is hailed as the “cornerstone” in the accounting profession as it is the core reason as to why the public trusts their professional opinion. However, since 2000, many accounting fraud scandals have negatively impacted public opinion on the legitimacy of the audit profession and, if in fact, its independence is uninfluenced by other parties. One of the scandals being the sudden collapse of Enron, given that a few months prior its bankruptcy its auditors Arthur Andersen, which was one of the five largest audit and accounting firms, claimed that Enron was financially healthy, but in fact they were paid off

Cable provider Adelphia was one of the major accounting scandals of the early 2000s that led to the creation of the Sarbanes-Oxley Act. A key provision of the Act was to create a stronger ethical climate in the auditing profession, a consequence of the apparent role that auditors played in some of the scandals. SOX mandated that auditors cannot audit the same companies for which they provide consulting services, as this link was perceived to result in audit teams being pressured to perform lax audits in order to secure more consulting business from the clients. There were other provisions in SOX that increased the regulatory burden on the auditing profession in response to lax auditing practices in scandals like Adelphia (McConnell & Banks, 2003). This paper will address the Adelphia scandal as it relates to the auditors, and the deontological ethics of the situation.

Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger

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

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.

WorldCom acquired Arthur Andersen as the independent external auditing for the company. As WorldCom grew after the merger with MCI, Andersen began to invoice less than they should have. The charges were defended as an opportunity to prolong business with WorldCom. (Kaplan and Kiron, 2007). This is an immediate red flag for a company. Where were the ethical practices of the independent auditor? If the auditor has no ethics, how can one possibly be assured that the company is performing its intended function appropriately? The board of directors should have immediately been informed of Andersen’s practices and made a decision to confront Andersen’s practices and possibly obtain new independent auditors.