The Enron Collapse: Audit of Related Party Transactions
April 21, 2003
The Enron Collapse
Was Enron’s collapse due to a failure in the standard setting process? Why or why not?
The Enron collapse was by no means due to a failure in the standard setting process instead, the collapse resulted from Enron’s fast growing rate and its highly “creative” management team who at one point just lost control of the business. The company stopped doing what it was known for doing best, energy generations, and began exploring and operating in a new and unknown business segment and a new industry. The standard setting process was indeed effective; however management kept finding ways to go around the system. Finally, the collapse can also be attributed to management integrity and Andersen’s failure to detect accounting irregularities. Auditors should have looked closer at the complex and complicated SPEs transactions in whish the company was venturing.
What is the Emerging Issues Task Force (EITF)? Is it the same as FASB? Does a Consensus of the EIFT have the same power of GAAP as an FASB Statement?
No they are not the same. The EITF was formed in 1984 in response to the recommendations of the FASB’s task force on timely financial reporting guidance and an FASB invitation to Comment on those recommendations. Task Force members are selected from public accounting firms but also include representatives of industry nominated by the Financial Executives, the Institute of Management Accountants, and the Business Roundtable. The chief accountant of the Security Exchange Commission attends Task Force Meeting regularly as an observer with the privilege of the floor.
EITE tries to develop a procedure for something new before it is embedded in FASB. In regards to the EIFT Consensus, they don’t have the same power of GAAP as per FASB Statement. Although they are usually accepted by FASB and become rulings in some instances they have been declined and veto.
Should the FASB revise the “3 percent rule” that now governs the
The Enron Collapse
Was Enron’s collapse due to a failure in the standard setting process? Why or why not?
The Enron collapse was by no means due to a failure in the standard setting process instead, the collapse resulted from Enron’s fast growing rate and its highly “creative” management team who at one point just lost control of the business. The company stopped doing what it was known for doing best, energy generations, and began exploring and operating in a new and unknown business segment and a new industry. The standard setting process was indeed effective; however management kept finding ways to go around the system. Finally, the collapse can also be attributed to management integrity and Andersen’s failure to detect accounting irregularities. Auditors should have looked closer at the complex and complicated SPEs transactions in whish the company was venturing.
What is the Emerging Issues Task Force (EITF)? Is it the same as FASB? Does a Consensus of the EIFT have the same power of GAAP as an FASB Statement?
No they are not the same. The EITF was formed in 1984 in response to the recommendations of the FASB’s task force on timely financial reporting guidance and an FASB invitation to Comment on those recommendations. Task Force members are selected from public accounting firms but also include representatives of industry nominated by the Financial Executives, the Institute of Management Accountants, and the Business Roundtable. The chief accountant of the Security Exchange Commission attends Task Force Meeting regularly as an observer with the privilege of the floor.
EITE tries to develop a procedure for something new before it is embedded in FASB. In regards to the EIFT Consensus, they don’t have the same power of GAAP as per FASB Statement. Although they are usually accepted by FASB and become rulings in some instances they have been declined and veto.
Should the FASB revise the “3 percent rule” that now governs the
References: 1) Jenkins, J. Grefory, The Enron Collapse 2) Arens A. Alvin, el all. Auditing and Assurance Services, ninth edition 3) WWW.aicpa.org 4) Whittington, Ray and Fischbach, Gretchen, “The New Audit Documentation Requirements”, Journal of Accountancy, Online Issue, April 2002.