Arthur Anderson
ACC/260
Page 113: Questions 1, 3, and 4
1. Arthur Anderson’s audit partners’ sole concern was how much revenue could be generated, so the employees of Arthur Anderson paid little mind to the quality of the audits they did as long as they were making money. They turned their heads when generally accepted accounting principles were not being followed and hid the fact that Enron’s policies and internal controls were not good enough to protect its shareholders.
3. The prime motivation behind the decisions of Arthur Andersen’s audit partners on the Enron, WorldCom, Waste Management, and Sunbeam audits was not public interest, as it should have been, but how much of a profit could be made. Examples that reveal this motivation include the fact that the CEO only ever reported profit as a measure of success, not quality or content; “the most sensitive decisions were taken by the person who was most concerned with the potential loss of revenue from the client in question, and who was most likely to be subject to the influence of the client” (CITE); and when Carl Bass, the partner in charge of the Enron account, asked for an accounting change that would have resulted in a substantial charge to Enron’s earnings, he was fired just two weeks later.
4. An auditor should make decisions in the public interest rather than in the interest of management or current shareholders because the public depends on auditors to be honest and make sure generally accepted accounting principles are being followed. The public also depends on auditors to make sure that when GAAP are not being followed, changes are made so they are in the future.
Page 113: Questions 1, 3, and 4
1. Arthur Anderson’s audit partners’ sole concern was how much revenue could be generated, so the employees of Arthur Anderson paid little mind to the quality of the audits they did as long as they were making money. They turned their heads when generally accepted accounting principles were not being followed and hid the fact that Enron’s policies and internal controls were not good enough to protect its shareholders.
3. The prime motivation behind the decisions of Arthur Andersen’s audit partners on the Enron, WorldCom, Waste Management, and Sunbeam audits was not public interest, as it should have been, but how much of a profit could be made. Examples that reveal this motivation include the fact that the CEO only ever reported profit as a measure of success, not quality or content; “the most sensitive decisions were taken by the person who was most concerned with the potential loss of revenue from the client in question, and who was most likely to be subject to the influence of the client” (CITE); and when Carl Bass, the partner in charge of the Enron account, asked for an accounting change that would have resulted in a substantial charge to Enron’s earnings, he was fired just two weeks later.
4. An auditor should make decisions in the public interest rather than in the interest of management or current shareholders because the public depends on auditors to be honest and make sure generally accepted accounting principles are being followed. The public also depends on auditors to make sure that when GAAP are not being followed, changes are made so they are in the future.