Crisis of Enron and Auditors Responsiblilites
Viktoria Martirosyan
Case 1.1
Qt.1
Several parties were responsible for Enron crisis, including independent auditor, key executive officers, internal auditors, SEC and FASB. The hypocrisy, dishonorable actions and unethical behavior of Kenney Lay, Jeffrey Skilling, Andrew Fastow led to bankruptcy. This and many other problems, such as loss in transactions involving the swaps stocks, SPE related issues and est., finally contributed to crisis. As Enron executives, all of their concerns should have been focused on Enron’s profits, but seems that many of them only cared about their wealth. When financial problem surfaced, they did not attempt to fix it, but made efforts to maintain their own benefits and ignored the whole company’s and investor’s loss. This unethical behavior not only deceived the investors but also finally resulted in Enron’s crisis.
Auditors also played an important role in Enron’s downfall. The most important statutory duty of the independent auditor is to ensure the financial reports are intended to give a true and fair view. If the financial statement contains fraud and irregularities, independent auditor should discover and report it to the proper authority. Auditors were negligent of their duties. Anderson breaches the duty to warn, as they knew there was fraud and major error in the financial statements. Moreover, questionable accounting and financial decisions had been reviewed, analyzed, and apparently approved by Andersen. Even worse, Anderson was issuing unqualified reports over the period of time while the books were “cooked”. They jeopardized their independence by providing many not just audit services but also consulting services. In addition, to prevent law enforcement authorities from obtaining potential incriminating evidences Andersen shred the audit workpapers. All of these triggered the public disappointment in professionalism that leads accounting industry to take its blame in Enron’s crisis. SEC and FASB didn’t
Case 1.1
Qt.1
Several parties were responsible for Enron crisis, including independent auditor, key executive officers, internal auditors, SEC and FASB. The hypocrisy, dishonorable actions and unethical behavior of Kenney Lay, Jeffrey Skilling, Andrew Fastow led to bankruptcy. This and many other problems, such as loss in transactions involving the swaps stocks, SPE related issues and est., finally contributed to crisis. As Enron executives, all of their concerns should have been focused on Enron’s profits, but seems that many of them only cared about their wealth. When financial problem surfaced, they did not attempt to fix it, but made efforts to maintain their own benefits and ignored the whole company’s and investor’s loss. This unethical behavior not only deceived the investors but also finally resulted in Enron’s crisis.
Auditors also played an important role in Enron’s downfall. The most important statutory duty of the independent auditor is to ensure the financial reports are intended to give a true and fair view. If the financial statement contains fraud and irregularities, independent auditor should discover and report it to the proper authority. Auditors were negligent of their duties. Anderson breaches the duty to warn, as they knew there was fraud and major error in the financial statements. Moreover, questionable accounting and financial decisions had been reviewed, analyzed, and apparently approved by Andersen. Even worse, Anderson was issuing unqualified reports over the period of time while the books were “cooked”. They jeopardized their independence by providing many not just audit services but also consulting services. In addition, to prevent law enforcement authorities from obtaining potential incriminating evidences Andersen shred the audit workpapers. All of these triggered the public disappointment in professionalism that leads accounting industry to take its blame in Enron’s crisis. SEC and FASB didn’t