Auditing of Enron Corporation
Responsible Accounting and Enron Questions
There were numerous parties associated with Enron who were responsible for creating the "crisis of confidence" in the accounting profession. At the top of the list would be Enron's executives themselves: Jeffery Skilling, Kenneth Lay and Andrew Fastow all broke numerous rules, regulations and laws that govern accounting principles in order to increase their revenue on the income statements and in turn raise their stock prices. Among the most grievous accounting sins committed were the failing to recognize Enron's true revenue, in which revenue numbers were inflated using mark-to-market accounting; falsifying earnings so that the stock prices would stay high; and committing insider trading in order to benefit even further from their deception.
A second party that caused just as much chaos in the accounting profession was the accounting giant Arthur Andersen. As Enron's own committees discovered, the then-respected firm failed to handle the company's financial irregularities ethically, and instead chose to ignore and avoid the irregularities instead of raising the problems with Enron's board. Andersen was making tens of millions of dollars from Enron every year through both its consulting and auditing services,...
Lastly, and most shockingly, Andersen's employees shredded thousands of documents relating to Enron once the scandal broke, thereby committing a devastating obstruction of justice.
Finally, the Security and Exchanges Commission failed to discover and investigate Enron's misdeeds until it was far too late. Granted, the SEC did not have the power it holds now, under the Sarbanes-Oxley Act, but its unwillingness to investigate Enron's unbelievable growth on paper did nothing to help the situation.
2. There are three main consulting audit services currently provided by audit firms: the operational audit, the financial audit and the internal audit. Each service plays a different role in helping a company improve its efficiencies and maintain a positive relation with third parties.
The first service type, the operational audit, is made for the client's management team, and involves an analytic review of the company's operations in the past, present and future. It assists the management team with determining weaknesses in the company, and can go on for an indefinite amount of time. The threat against independence lies in the fact that the company itself…
