Auditing issues in Enron case - 2114 Words

1 Auditing issues in Enron case Independent Needed for the Houston office of Andersen, an audit partner that understands the role of being a public watchdog with ultimate allegiance to the creditors and shareholders . Arthur Anderson abandoned its roles as independent auditor by turning a blind eye to improper accounting, including the failure to consolidate, failure of Enron to make $51million in proposed adjustments in 1997, and failure to adequately disclose the nature of transactions with subsidiaries . Another example is Lord Wakeham joined Enron as a non-executive director in 1994 and also sat on Enrons audit and compliance committee. In addition, Andersen also provides internal audit service to Enron, which in fact impact†¦show more content†¦When Enrons stock price subsequently fell, the SPEs value also fell, triggering the Enron guarantees, which guarantee payments in turn apparently further reduced Enron stock value, triggering additional guarantees. Other guarantees would eventually buffet Enron. In the case of Braveheart, CIBC World Markets made a $115.2 million investment in return for a promise of nearly all of Enrons profit from the venture for 10 years. Whats more, Enron agreed to repay CIBC its investment, if Braveheart failed to make money. The role guarantees play in distributions to creditors Any time an enterprise guarantees the indebtedness of another in material amounts, the enterprise must disclose the nature and amount of the guarantees in the notes to the financial statements. When Enrons SPEs sought credit, the lenders often required that Enron guarantee the debt. On several occasions, Enron guaranteed amounts that various SPEs borrowed by promising to pay cash or to issue additional common shares to repay the debt if the market price of Enrons common shares dropped under a set amount or if Enrons bond rating fell below investment grade. While the notes to Enrons financial statements disclosed guarantees of the indebtedness of others, Enron did not mention that its potential liability on those guarantees, which shared common debtShow MoreRelatedEnron Was Formed In 1986 By Ken Lay (â€Å"Enron Case Study†,1439 Words   |  6 PagesEnron was formed in 1986 by Ken Lay (â€Å"Enron Case Study†, n.d). It was an energy and service company based in Houston. â€Å"The early years of Enron were modest, and despite suffering financial woes and tremendous debt for several years, Enron survived.† (Rafraf Haug, 2013). Enron was the 7th largest company on the Fortune 500 in the year 2000 with assets of $65 billion and revenue of over $100 billion (â€Å"Enron: Quality Assurance†, 2016, p 17). Despite of revenues in 2000, Enron filed for bankruptcyRead MoreThe Enron Scandal Of Enron1052 Words   |  5 Pagesskeptical about accountants’ reliability when the Enron scandal occurred. 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This report will discuss the Enron scandal in which the auditing firm Arthur Andersen LLP turned a blind eye to the fraudulent actions of Enron Corporation, leadingRead MoreArthur Andersen: Failure to Report Accurately Essay1214 Words   |  5 PagesEnron Corporation has been accused of cooking the books and overstating company profits in its financial reports. In addition, Enron’s trading business adopted mark-to-market accounting, which meant that once a long-term contract was signed, income was estimated as the present value of net future cash flows, even though in some cases there were serious questions about the viability of these contracts and their associated costs. Author Andersen provided both consulting and auditing services whichRead MoreThe Demise Of The Andersen Accounting1746 Words   |  7 PagesThe Enron scandal was one of the most notorious bankruptcies of all time. Many people know about the energy titan’s downfall but less realize that it was also one of the biggest auditing blunders in American corporate history, leading to the dissolution of the Arthur Andersen LLP, which at the time was one of the five largest auditing and accountancy partnerships in the world. The most intriguing aspect of this case is that Andersen was eventually cleared by the United States Supreme Court, yet the