Enron Case
1. The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe are most responsible for that crisis. Briefly justify each of your choices.
a. Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. A common theme of the allegations leveled at the three executives was that they had created a corporate culture that fostered, if not encouraged, “rule breaking”.
b. Andersen. They allowed Enron to use these fraudulent statements for 15 years. Corporate executives and their accountants are ultimately responsible for the integrity of their company’s financial statements.
2. List three types of consulting services that audit firms have provided to their audit clients in recent years. For each item, indicate the specific threats, if any, that the provision of the given service can pose for an audit firm’s independence.
a. Providing IT services. There could be a self-evaluation threat because they would evaluate what they have created.
b. Valuation services. Auditors could be threatened when providing appraisals. There could be intimidation threats.
c. Management functions. There could be independence issues like familiarity threats. 3. For purposes of this question, assume that the excerpts from the Powers Report shown in Exhibit 3 are accurate descriptions of Andersen’s involvement in Enron’s accounting and financial reporting decisions. Given this assumption, do you believe that Andersen violated any professional auditing standards? If so, list those standards and briefly explain your rationale.
Yes, they did violate the professional auditing standards.
a. Objectivity. Since they participated in the structuring and accounting treatment of the Raptor transactions, and charged over $1 million for its services, they have failed to provide the objective accounting judgment that should have
a. Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. A common theme of the allegations leveled at the three executives was that they had created a corporate culture that fostered, if not encouraged, “rule breaking”.
b. Andersen. They allowed Enron to use these fraudulent statements for 15 years. Corporate executives and their accountants are ultimately responsible for the integrity of their company’s financial statements.
2. List three types of consulting services that audit firms have provided to their audit clients in recent years. For each item, indicate the specific threats, if any, that the provision of the given service can pose for an audit firm’s independence.
a. Providing IT services. There could be a self-evaluation threat because they would evaluate what they have created.
b. Valuation services. Auditors could be threatened when providing appraisals. There could be intimidation threats.
c. Management functions. There could be independence issues like familiarity threats. 3. For purposes of this question, assume that the excerpts from the Powers Report shown in Exhibit 3 are accurate descriptions of Andersen’s involvement in Enron’s accounting and financial reporting decisions. Given this assumption, do you believe that Andersen violated any professional auditing standards? If so, list those standards and briefly explain your rationale.
Yes, they did violate the professional auditing standards.
a. Objectivity. Since they participated in the structuring and accounting treatment of the Raptor transactions, and charged over $1 million for its services, they have failed to provide the objective accounting judgment that should have