Systemic Corporate and Individual Issues with Enron

Topics: Enron, Enron scandal, Auditing Pages: 3 (766 words) Published: May 18, 2011
What are the systemic, corporate, and individual issues raised by this case?

This case discusses the story of Enron, the infamous American energy company that December 2, 2001 filed the largest bankruptcy case in US history, totaling losses around 66 billion US dollars,1 forcing 4,000 unemployed,2 and bringing down Arthur Andersen, 3 its auditing company. For many of the “bad” and publicly convicted Enron executives it has been the worst nightmare come true, a personal travesty. Cliff Baxter, an Enron executive, has committed suicide and Ken Lay, after being found guilty of conspiracy and fraud, died of heart attack. We might ask, why did these people choose to risk so much? Did they not consider personal responsibility? Did they not consider the possibility of prosecution and consequences of public hate? Did they not consider the pain and anguish their relatives and family would have to bear?

Enron was one of the world's largest energy, commodities and services companies. Before its Chapter 11 bankruptcy filing, it marketed electricity and natural gas, delivered energy and other physical commodities and provided financial and risk management services to customers worldwide. It was America's seventh largest company2 and employed over 21,000 people in 40 countries.

Andersen, who were Enron's auditors, have come under criticism for their failure to disclose the true nature of Enron's financial position. There have also been criticisms regarding Andersen's audit independence, as they also provided consulting services to Enron. The SEC promulgated the current rules dealing with the independence of auditors in November 20005. Briefly, the rules provide that an auditor is not independent if a reasonable investor, with knowledge of all relevant facts and circumstances, would conclude that the auditor is not capable of exercising objective and impartial judgment. The rules do not extend to a total ban on non-audit services, but identify circumstances in which...
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