Case Analysis 1-Edited

CASE ANALYSIS ANALYSIS 1: ENRON AND ARTHUR ANDERSEN AND ERSEN LLP

1. Members of Enron Enron management were were the individuals who perpetrated the nancial statement fraud. Given this, why do you think auditors were held respo responsi nsible ble when when they they are are not the ones ones actual actually ly making making the fraudu fraudulen lentt  journal entries entries !irst and foremost, an auditors are not responsible for the preparation and presentation of the nancial statements. "uditors are only responsible to e#press an opinion about the fairness and reliability of the management$s assertions about their own operations. %n the case of E&'(& scandal, the auditors of the "rthur "ndersen were still held responsible since from the very very start start of their their agreem agreement ent,, they they had the contr control ol over over the compan company$s y$s information and documents, whether to tolerate or reveal the fraud found. )econd, it is the auditors who are supposed to be the representative of  the public to provide increased assurance whether the nancial statements are reliable or not, and the public put condence to their reports. %n this case, it is true that they are not the ones making the fraudulent entities but because of their purpose mentioned above, it is their task to uncover any fraudulent act of the management. "nd lastly, "rthur "ndersen, as the auditing rm who is responsible of  evaluating and having the Enron$s nancial statements be true have allowed the the forma formall proc proced edur ures es prov provid ided ed by the the stan standar dards ds in perf perfor ormi ming ng audi auditt disre dis regar garded ded in its its trans transact action ions s with with Enron Enron and made made them them accomp accompli lice ce in Enron$s fraudulent acts.

*. E#plain why the consulting fees and importance of Enron to +avid +uncan and the ouston o-ce of "rthur "ndersen might have aected +uncan$s independence, and thus the /uality of the audits he supervised. Mr. Mr. +avid +avid +uncan +uncan may had develo developed ped close close ties ties with with their their client client,, Enron. Even his o-ce was in an Enron building. "nd receiving 000 as his consulting revenue. ut given at that time, there were no standards yet regarding independence to prohibit the "rthur "ndersen, as an auditing rm to provide dierent audit and assurance services. 2hus, "ndersen still had independence from their client, Enron. )till, having such high consulting fees, it may bring some confusion to the publ publiic that that the audi audito torr has has no indep ndepe ende ndence nce in eith eithe er mind ind or appear appearanc ance e as to its evalua evaluatio tion n to the fairn fairness ess and relia reliabil bility ity of Enron$ Enron$s s nancial statements. %n this case, the way Mr. +uncan perceives his service

to Enron may have some repercussions for his actions, Mr. +uncan was an advocate for his client$s accounting options and him being a client pleaser wants to continue his well3paid auditing and consulting services.

4. +escribe the likely users of Enron$s audited nancial statements. ow were these various user groups likely aected by the fraud 5ery few people were involved with the scandal of Enron and "rthur "ndersen. owever, the eect of the actions these people have made greatly aected many people including its vast and wide users. )tockholders6 2he sudden decrease in Enron$s stock price caused tremendous shock to the company$s shareholders wherein they lost a great value of amount in their investment. Even potential shareholders were also aected by such decrease in the stock price because they doubted the integrity of the nancial statements reported by the company.

initially reaped tremendous gains from their investments in Enron stock, as the company$s price rose much faster than market averages during the late 1778s. %n *881, as the stock price collapsed, investors lost 098 billion in market value. oth individual and institutional shareholders were hurt. :articularly devastated were Enron employees whose ;81