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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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In 2001, Enron Corporation filed financial statements in which it did not consolidate various special purpose entities, thereby keeping large amounts of debt off its balance sheet. The company has since declared bankruptcy and admitted that it violated GAAP. Enron’s auditor, Arthur Andersen LLP, issued an unqualified audit opinion stating that Enron had followed GAAP. Instead, Enron should have changed its accounting principles to conform to GAAP, and Andersen should not have issued an unqualified opinion.

The U.S. Department of Justice began an investigation of Enron and Arthur Andersen. Some employees of Arthur Andersen shredded certain documents related to the audit. As a result, the firm was found guilty of obstruction of justice and therefore was no longer able to perform audits. Only a few of the Arthur Andersen partners and employees were involved in the audit and even fewer in the shredding. However, thousands of Arthur Andersen employees lost their jobs.

Required:

From an ethical perspective, discuss whether the actions of the Department of Justice were fair with regard to the employees of Arthur Andersen.

To determine

Discuss whether the ethical perspectives of the actions of Department of Justice regarding the employees of Company AA were fair.

Explanation

Facts of the case: Corporation E declared bankruptcy in 2001, and admitted that it had violated Generally Accepted Accounting Principles (GAAP). But the auditor of Corporation E, Company AA issued an unqualified audit report, confirming that Corporation E had prepared financial statements in conformity with GAAP. Although few employees of Company AA were involved in the audit and shredding of certain related documents, but Department of Justice laid of thousands of employees, for guilty of obstruction of justice...

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