The Enron Disaster

Topics: Enron, Auditing, Audit Pages: 3 (844 words) Published: September 14, 2012
1. What did Arthur Andersen contribute to the Enron disaster? Arthur Andersen (AA) contributed to the Enron disaster when AA consulting became its own separate entity, named Accenture. Revenues from consulting services surpassed revenue from auditing services. A natural competitiveness grew between the two rivals and this is where the problems began to start. Management held maximinizing revenues as their primary focus of success and promotions/bonuses were based on this factor. The CEO of AA, Joe Berardino, was an extremely aggressive pursuer of revenue. This set a negative culture at the top of the company and partners were expected to comply and atttain that demand. In addition, AA recognized the retention of audit clients as imperative and a loss of a client would be detrimental to an auditor’s career. This is where the issue in regards to auditors standing up to management and the client became unclear. AA was the only firm to allow the partner in charge of the audit to override a ruling of the quality control partner. The auditor had a fiduciary duty to the shareholders of the company being audited not to the company itself. Another major contributing factor was AA’s approval of Special Purpose Entities (SPE) that was used to generate false profits, hide losses and keep any undesirable information off Enron’s financial statements. 2. Which Arthur Andersen decisions were faulty?

AA made many decisions in regards to the Enron audit which led to their ultimate downfall. Briefly discussed below are some decisions made by AA that failed to adhere to GAAP. AA approved the structure of many Special Purpose Entities (SPE) that were used to generate false profits, hide losses, keep financing off Enron’s consolidated financial statements, and failed to meet the required outsider 3 percent equity at risk, and decision control criteria for non consolidation. In addition, various transactions between Enron and the SPEs were not in the interest of Enron... 3. What...
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