When auditing a publicly held company, auditors need to observe principles. The ethical principles of the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct are independence, responsibilities, the public interest, integrity, objectivity and independence, due care, and scope and nature of services. More specifically, audit team members are required to be objective and independent with regard to the audit by maintaining objectivity and being free of conflicts of interest in discharging professional responsibilities and by being independent in fact and appearance when providing auditing and other attestation services. Through this one can see how influential the SEC is. Under the Sarbanes-Oxley Act of 2002, auditors have to be objective and independent otherwise legal sanctions can be incurred.…
Enron’s top management, especially misled not only the board of directors he was able to misled the investor which bring about Enron filing for bankruptcy in 2001. In early, 2002 criminal investigation was open by US department of Justice into Enron’s collapse. The Security exchange commission (SEC) also opened the investigation into Arthur Andersen as well because they destroy and hide evidence of Enron’s financial statement. The role of the auditing giant Arthur Andersen in the collapse of Enron is incomprehensible to some. The accounting firm overlooked significant debts that are not the Enron’s financial statement. US department of justice found them guilty on federal charges that it obstructed justice by destroying thousands of Enron documents.…
The criminal justice department and the SEC were conducting their investigations during the same time period as the development of Sarbanes-Oxley Act of 2002 (SOX). In the early 1990s, Enron had become successful for their innovative practices of improve companies financials through structuring Special Purpose Entities (SPE’s). Under these complex transactions, Enron clearly masked their debt liabilities by selling assets between these limited partner shell companies and fabricated profits. It was hardly a coincidence that yet another Houston commodities corporation in connection with Arthur Andersen had misrepresentation and fraudulent reporting. This systematic corporate scheme led shareholders loss of $74 billion and caused employees and investors to lost retirement accounts. Several key management players, along with Andersen, were found guilty of fraud and most of them severed prison time (Willits; Nicholls,…
Was established in 1985, Enron was an American energy trading company based in Houston, Texas through the merger of two pipeline companies, Houston Natural Gas and Internorth Corporation. Enron Corporation set Special Purpose Vehicles are subsidiary corporations which are designed by the parent company to hide its debt and cheat the public. The essential purpose is to increase the companies’ profit and reputation, and it allows the general public to purchase its stock. In August of 2000, Enron reaches its peak market value of $68 Billion. By December 2001, Enron was in bankruptcy. Under the cloud of its financial scandals, the price per share plummeted from nearly $100 a share to less than 50¢ a share. On May 25, 2006, Enron was convicted of defrauding the public. Arthur Andersen, Enron’s auditors, allowed the chaos, and they had no paid for the responsibility of professional care. Enron was one of its biggest clients. It earned $27 million from Enron for consulting services, and only $25 million on auditing. At the time, Andersen was one of the top five accounting firms in the world. At the end, it was dissoluble due to its role in Enron’s financial scandal, and it committed auditing…
Arthur Andersen, who used to be one of the “Big Five” largest accounting firms in the…
Anderson’s auditors provided these prohibit services to their public company client Enron: offering consulting service to Enron about their daily accounting decisions and operations which states as “bookkeeping or other services related to the accounting records or financial statements of the audit client” in Section 201 Sarbanes-Oxley Act of 2002. Anderson’s auditors were also deeply involved in Enron’s Accounting system software creation and financial reporting which violated the prohibit service as Sarbanes-Oxley Act of 2002 states “financial information systems design and implementation”. As independent auditors, Anderson’s auditors accepted the fees from Enron as their public company audit client and provided them legal consulting service, which violated the prohibit service as Sarbanes-Oxley Act of 2002 states “legal services and expert services unrelated to the audit”.…
Explain why some corporate executives may perceive that their independent auditors are a “necessary evil.” How can auditors combat or change that attitude?…
With any big organization going so bad, the blame starts with the top level executives, there was no different in this case. For Enron the blame started with Enron’s executives, Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. Their goal was to make Enron into the world’s greatest company. To make this goal a reality, they created a company culture that encouraged “rule breaking” and went so far as to “discourage employees from reporting and investigating ethical lapses and questionable business dealings”. They insisted the employees use aggressive and illegal accounting procedures. Anderson was also responsible because they allowed Enron to use these fraudulent statements for 15 years. It is the auditor’s responsibility to question any unusual circumstances and reports and they failed to do so. They should have questioned the SPEs, should have noticed that notes receivable were reported wrong, and should have noticed that there was no internal control being practiced. Also, Anderson should never have practiced consulting services for a company that they audited.…
There are several legal and ethical issues surrounding Andersen’s audits of companies accused of improprieties and they center around the fact that Andersen either knowingly failed to report these improprieties…
During May of 2002, Arthur Andersen LLP was finally indicted on charges of obstruction of justice by the Southern Texas District Court, served by Michael Chertoff. The jury believed that Arthur Andersen and its employees were in violation of 18 US Code § 1512, a public law which covers “tampering with a witness, victim, or an informant”5, due to the mass destruction of documents in anticipation of the upcoming SEC investigation. This effectively ended the company’s practice as its CPA license was taken away, but Andersen continued to…
Assistance! Arthur Andersen assisted Enron in deceiving stakeholders by revealing ways to generate false profits and hide losses through the development of Special Purpose Entities (SPEs). Enron’s consolidated financial statements did not depict or clearly give investors an accurate assessment about the company’s operating and financing activities. Generally Accepted Accounting Principles (GAAP) were not observed nor enforced; Arthur Anderson okayed/ condoned Enron to issue shares “as…
In October 2001 it was revealed that reported financial condition of Enron Corporation was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. Enron misrepresented its profits and was accused for a range of shady dealings, including concealing debts so they didn 't record it in the company 's accounts. On December 2, 2001 the Enron Corporation announced about its bankruptcy and dissolution of Arthur Andersen. Additional to the bankruptcy, the company was recognized as the biggest audit failure in American history of audit.…
3. Enron And Arthur Andersen: The Case Of The Crooked E And The Fallen A Gary M. Cunningham and Jean E. Harris Global Perspectives on Accounting Education Volume 3, 2006, 27-48…
3. The prime motivation behind the decisions of Arthur Andersen’s audit partners on the Enron audits was not for the public interest but for profit and fear of losing clients. On page 109, an example that shows the need for profit instead of compliance with GAAP is, “This meant that at AA, the most sensitive decisions were taken by the person who was most concerned with the potential loss of revenue from the client in question,…
Arthur Andersen LLP was one of the “Big Five” accounting firms before having to surrender its licenses to practice as Certified Public Accountants in 2002; due to an accumulation of criminal charges (CNN Money). Arthur Andersen was in charge for the accounting records of several companies including Enron, WorldCom, and Waste Management. By early 2002, they had been charged of falsely auditing books for all three companies. The business revenue from these clients was more important than the ethical decision, so they managed to provide misleading information for several years.…