The Enron Scandal Of Enron

1052 Words Jan 16th, 2016 5 Pages
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.
Many believed Andersen’s independence was impaired when it audited Enron. Enron and Andersen started to tie closely when Enron outsourced its internal audit to Andersen in 1993 and increasingly hired many employees from Andersen in late 1990s. Andersen’s closeness to Enron raised concerns regarding whether auditors were truly independent when they reviewed Enron’s books. Besides, as one of the biggest clients for Andersen, Enron paid $52 million to Andersen in 2000 for its non-auditing and auditing services. More importantly, the non-consulting income accounted for more than half the $52 million revenue. Critics said that it was because Anderson relied on such large revenue from its big client that it became reluctant to question too much about Enron’s account.…

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