1) What Did Arthur Andersen Contribute to the Enron Disaster?

Topics: Enron, Auditing, Audit Pages: 2 (679 words) Published: February 22, 2013
1) What did Arthur Andersen contribute to the Enron disaster?

Arthur Andersen (AA) contributed to the Enron disaster when it has failed to the management by failing to have Enron establish and enforce its own internal control. There has been flaws to AA‘s internal control. There has been assumption that AA partners were too motivated by revenue recognition thus, overlooking several criteria when providing their services to Enron. Additionally, AA also recognised the retention of audit clients as vital and a loss of any clients would be disadvantaged to an auditor’s career. In AA internal control, the person who is able to make most of the decisions is the person who is most concerned about the revenue or losses of the client’s company. Therefore, in regards to the auditors standing up to the management or to the client has become unclear. AA was the only firm in the “Big 5” to allow the partner in charge of the audit to override a ruling of the quality control partner. All auditors have a fiduciary duty to provide reasonable assurance of detecting material misstatements in the financial report arising from fraud and error, and are responsible to the shareholders of the company being audited and not to the company. AA also contributed to the disaster by destroying and shredding of Enron audit papers, which are evidence to the disaster and which also covered deficiencies. This obstruction of justice had led to formal charges of obstructions of justice and jail sentence. Another big factor of contribution to this disaster is the approval of the structure of Special Purpose Entities (SPEs) that were used to generate false profits, hide losses and keep any unfavourable information out of Enron’s consolidated financial statements.

2) Which Arthur Andersen decisions were faulty?

During auditing of Enron’s documents, AA has made many decisions which led to their downfall. AA has approved for the structure of Special Purpose Entities (SPEs) which generate...
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