Case 1.1 Enron

Topics: Enron, Audit, Auditing Pages: 2 (738 words) Published: October 28, 2011
1. The Enron executive team including Kenneth Lay, Jeffrey Skilling, Andrew Fastow and other executives, were the key players in the crisis. The business practices they used when creating hundreds of SPE’s and diverting large amounts of liabilities to those off-balance sheet entities. Enron was aware of the minimal accounting guidelines for SPE’s and used them to their advantage. To create such a complex “paper” structure, the executives had to have coordinate their plans with the accountants to ensure the transaction were done to benefit the company’s financial statements. Skilling had a goal to transform Enron into “the world’s greatest company”. His determination to achieve this goal was the ultimate demise of Enron. The finding from the case against Enron stated that the notes in the financial statements regarding the transactions with deliberately vague or used confusing language. The accountants at Enron preparing the 10Q and 10K documents would be well aware of the transactions and would be the people responsible for the preparation of the footnotes in the filings. Sherron Watkins, the vice president of corporate development with an accounting background was one of the only executive members to aggressively reach out to Kenneth Lay to express her concern with the accounting decisions. The role of the Arthur Anderson audit team in the Enron crisis was not as direct as those on the executive committee. However, Arthur Anderson completed the annual audits of the Enron financial statements and issued an unqualified opinion. Anderson failed to make proper acknowledgement of the revenue recognition practices and use of SPE’s to divert debt. They did not react until Enron started its financial decline. Anderson spends over 50% of its time at Enron consulting. Had they invested more time on the audit process reviewing the accounting practices, the loss may have been minimized and clearly defined Anderson’s as an independent auditor.

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