Most of us work from rags to riches but this is not the case of the Enron Corporation. Instead of becoming the nation’s greatest company, Enron instead laid claim to being the largest corporate bankruptcy in the history. The greediness and egotism wiped out the honesty and integrity that should instill on the persons who were involved in this case.
Arthur Edward Andersen built his firm, Arthur Andersen & Company, into one of the largest and most respected accounting firms in the world through his reputation for honesty and integrity. His motto was “Think straight, talk straight” and he insisted that his clients adopt that same attitude when preparing and ...view middle of the document...
Throughout the early months of 2002, Andersen became the central point of attention among law enforcement authorities searching for the parties responsible for Enron’s sudden collapse. The accusations directed at Andersen centered on three key issues. The first issue had to do with the scope of professional services that Andersen provided to Enron. Critics charged that the enormous consulting fees Enron paid Andersen impaired the audit firm’s independence. The second issue stemmed from Andersen’s alleged role in Enron’s aggressive accounting and financial reporting treatments for its SPE-related transactions. Finally, the most embarrassing issue was the massive effort of Andersen’s Houston office to shred Enron audit documents, which eventually led to the termination of the firm.
1. Lists three type of consulting services that audit firm have provided to their audit client in recent years. For each item, indicate the specific threats, if any, that the profession of the given services can pose for an audit firm independence.
Three type of consulting services that audit firm have provided to their audit client are inspection of accounting procedures, auditing firm financial statements, professional consultancy in tax and other accounting procedures and directory and group policy audit.
When it comes to inspection of accounting procedures, there are certain threats, given the decision that matter. Hence, inspection of accounting procedures makes it more treatable in case of errors that can impact the company and audit client in the most unforeseen ways. When it matter to Andersen, the same professional services in auditing Enron accounting procedures are also withheld and dispatched. However, decision when it matter to Andersen and its audit client firm, that is to say Enron also was reached intimately most o the times. But the threat in matter of SPEs (special purpose entities) displays some manipulation from the part of the audit firm that also with prior knowledge of accounting ethics, which at most times makes it more risky, given the legal involvement.
In another case, such as the auditing financial statements, there are also greater risks, given that one wrong accounting procedure can disturb the company long enough that can also result in bankruptcy. Financial statements are an important component of the company revenue and all the financial processes. Manipulations of these data are likely to show up when it is audited accurately and with more precision. Moreover, the increasing enforcement and legal binding also make it more risky.
Finally, when it matter to group policy audit, the case of threats is also more imploded and the question of independence when it mater to auditing also crop up. Moreover internal and external audit also finds consideration in the third consultancy services as detailed herein. Hence in such a scenario there is very likely that professional ethics or accounting ethic also come to...