Case 4.1 Enron Corporation and Andersen, Llp

In: Business and Management

Submitted By lolcurtise
Words 997
Pages 4
Case Study: Enron Corporation and Andersen, LLP----Analyzing the Fall of Two Giants
The accounting issues involved in Enron’s case are: 1) Valuation issues with international assets; 2) Aggressive accounting treatments towards SPEs; 3) Negligence of information disclosure, and 4) Dereliction of duty of internal auditing department.
The auditing issues involved in Enron’s case are: 1) Putting its reputation at risk, Andersen issued “clean” audit opinions on Enron’s financial statement; 2) Auditing and consulting services were provided by the same accounting firm, which led to conflict of interest and jeopardized integrity, and 3) The revenue of providing auditing service to Enron occupied so large a share of Andersen’s total revenue that it lost its independence when confronted to Enron.
Questions:
Q2. a. Every company should be headed by an effective board which is collectively responsible for the long-term success of the company. The board is responsible for providing entrepreneurial leadership of the company within a framework of prudent and effective controls that enables risk to be assessed and managed. The board should set the company’s strategic aims, ensure that the necessary financial and human resources are in place for the company to meet his objectives and review management performance. The board should set the company’s values and standards and ensure that its obligations to shareholders and others are understood and met. But the primary responsibility of the board of directors is to protect the shareholders' assets and ensure they receive a decent return on their investment. b. The board of directors definitely could have prevented the fall of Enron. First of all, if the board of directors made the right strategies for Enron rather than created hundreds of SPEs to remove assets and debts off balance sheet, the…...

Similar Documents

Arthur Andersen Llp Case Study

...Arthur Andersen LLP 1 Discuss the environmental, strategic, and organizational changes that occurred over the life of Andersen in the context of Figure 11.1 2 Evaluate Andersen’s claim that their problems on the Enron audit were due to a few “bad partners” in the organization. If you disagree with this claim, discuss what you think were the root causes of the problem. 3 Suppose you were Andersen’s managing partner in the early 1990’s. Would you have done anything differently the actual management (assuming you knew only what they did at the time?). Explain 4 Discuss the relation between what happened at Andersen and multitask principle agent theory. 5 Discuss the relation between the “hard” and “soft” elements of a firm’s corporate culture in the context of this case. 6 Do you think that the problems at Andersen were unique to them or did they exist at the other big accounting firms? Suppose you were the top partner at one of the other major accounting firms at that time of Andersen’s demise. What actions, if any, would you take in response? Explain. 7 In 2000, the SEC proposed new regulations that would limit consulting work by accounting firms. This proposal was not passed by Congress. DO you think that the legislators were trying to act in the public interest when they failed to pass this proposal? Explain. 8 The American Institute of Certified Public Accountants is the primary professional association for certified public accountants. It......

Words: 394 - Pages: 2

Arthur Andersen Llp

...Capstone case study on organizational architecture Arthur Andersen LLP[1] Introduction and Overview It is difficult to find an example of a more spectacular business failure than the recent collapse of Arthur Andersen. Within a few years, Andersen moved from one of the largest professional service organizations in the world to almost complete collapse. The impact of the firm’s failure on its employees, customers, investors, and the general public is hard to overstate. The once proud reputation had been reduced to shambles. Even the President of the United States joked: “We just received a message from Saddam Hussein. The good news is that he’s willing to have his nuclear, biological, and chemical weapons counted. The bad news is he wants Arthur Andersen to do it.[2]” The dramatic demise of Andersen (along with the failures of companies such as Enron and Global Crossing) has raised concerns among managers throughout the world. They want to understand what caused the collapse of the company so that they can take actions to avoid similar fates. Over the years, Andersen’s business environment and strategy changed in material ways. Their management responded by making associated changes in their organizational architecture (decision right, performance evaluation and reward systems). Part 3 of this book has argued that ill designed organizational architectures can result in poor performance and even company failure. An important......

Words: 2907 - Pages: 12

Enron Corporation

...Running head: ENRON CORPORATION Enron Corporation (former NYSE ticker symbol ENE) Rosetta Foster Strayer University Business Law I – LEG 100 Dr. Dorothy A. Sliben October 25, 2010 Enron Corporation (former NYSE ticker symbol ENE) The ensuing scandal involving the Enron Corporation, Arthur Andersen, the Bush Administration, the ninety-six banks, et al., clearly shows the abuse of power, when corporations, etc. ultimately thinks and/or feel that it is above the law. The effects are still being felt even after the bankruptcy proceedings, collapse/fall and trials of one of the biggest and major corporate scandals in American history and time. 1. Describe how Enron could have been structured differently to avoid such activities. Enron having been obviously formulated as a business corporation (a legal entity that is separate and distinct from its owners), a privilege provided by the state legislature to corporations by virtue of its Articles of Incorporation, corporate by-laws and state and/or federal charter, under its guise and appearance as an artificial company. As stated by Shaw, W. (2010), “Corporations are legal entities, with legal rights and responsibilities similar but not identical to those enjoyed by individuals. Business corporations are; limited liability companies―that is their owners or stock-holders are liable for corporate debts only up to the extent of their investments.” (Enron failed to implement and enforce the structural guidelines......

Words: 1419 - Pages: 6

Capstone Case Study on Organizational Architecture: Arthur Andersen Llp

...CAPSTONE CASE STUDY ON ORGANIZATIONAL ARCHITECTURE: ARTHUR ANDERSEN LLP 1. Discuss the environmental, strategic and organizational changes that occurred over the life of Andersen in the context of Figure 11.1. Architectural design of firm may vary among companies. There are most common categories are business environment, strategy, and organizational architecture. Business environment of Andersen includes technology that was used effectively; structure of its markets, regulations which helped Andersen to grow along with its reputation. The second category is strategy which includes Andersen’s primary goals, choice of business, and services. Finally, the last category is organizational architecture which explains how authority is distributed among Andersen’s employees, and how rewards determined. BUSINESS ENVIRONMENT TECHNOLOGY | MARKETS | REGULATIONS | Company started using computers for bookkeeping.Company developed the largest technology practice. | Arthur Andersen was well respected, reputable auditing company for many customers.Early 1950s Andersen entered in computer consulting business. | The federal law in 1930’s which required companies to provide their financial statements to an independent auditor each year helped Andersen’s grow. | STRATEGY Quality audits were valued more than higher short-run firm profits.“Four cornerstones” of good service, quality audits, well managed staff and profits.Auditors were rewarded and promoted for making sound......

Words: 2128 - Pages: 9

Enron Corporation

...Enron Corporation: El Gran Fraude Financiero En 1985 nació Enron Corporation de la fusión de Houston Natural Gas Company e InterNorth. Enron Corporation pasó de ser una empresa común de gas en Texas, a participar en gran parte del mercado energético mundial y a ser considerada la séptima empresa de Estados Unidos según la lista de Fortune 500. Incluso las acciones de Enron en ese entonces se valoraban en más de 90 dólares. El fraude de Enron salió a la luz cuando en octubre del 2001 informaron sobre los resultados del primer trimestre de ese año. Algo en el informe no cuadraba y eso fue lo que levantó sospechas y dio inicio a una investigación. Es díficil determinar cómo empezó este gran fraude y son innumerables la cantidad de acciones antiéticas que relizó Enron. Primero que nada, creó compañías ficticias con el fin de generar mayores ingresos, crear y aumentar valor para los accionistas y por supuesto, aumentar la rentabilidad de la empresa. Los ejecutivos de la empresa recibieron opciones sobre acciones, y solicitaron la indemnización de gastos para así evitar pagar impuestos. Por otro lado, las personas que notaban las irregularidades en la contabilidad de la compañía eran despedidas para poder continuar con la farsa “tranquilamente”. La compañía realmente estaba en la quiebra y logró ocultarlo manipulando la información con ayuda de la firma auditora Arthur Andersen, encargada de la contabilidad de Enron, que luego admitió haber destruido documentos y como si fuera...

Words: 631 - Pages: 3

Case Analysis of Enron Corporation

...Case Analysisof Enron Corporation In: Business and Management Case Analysisof Enron Corporation Name: Janet P. Cambangay Section & Year: BSBA-I Teacher: Sir Zadrack B. Fiel Subject: Management 1 Time Session: 2:00pm-5:00pm 07/23/2011 Weekend Class CASE STUDY I. TIME CONTEXT Regular Staff Meeting (TODAY) II. VIEWPOINT The different considerations being made by every section which results the 40% failure rate in selecting supervisors. In regards, with this, the department manager stabilizes that having a best technical people is just a trouble. It may only lead people to spend their time for technical works only which caused incompetency to manage. Second, is that the basis of seniority will only ignores everything learned about managing and it is unrealistic that the when the candidates get the job he will become capable and proficient in management. III. STATEMENT OF THE PROBLEM The poor quality of the twenty supervisors reporting to the section heads due to poor record in selecting good supervisors. IV. OBJECTIVES * Supervisors must have a high standard in terms of their performances, knowledge and skills in business management. * The promotion of supervisors must base with their capabilities and unique approach to their responsibilities in managing the business. * An excellent supervisor must gain the skills in management, technical and conceptual skills of business supervision. V. AREAS OF......

Words: 318 - Pages: 2

Arthur Andersen Llp

...Capstone case study on organizational architecture Arthur Andersen LLP[1] Introduction and Overview It is difficult to find an example of a more spectacular business failure than the recent collapse of Arthur Andersen. Within a few years, Andersen moved from one of the largest professional service organizations in the world to almost complete collapse. The impact of the firm’s failure on its employees, customers, investors, and the general public is hard to overstate. The once proud reputation had been reduced to shambles. Even the President of the United States joked: “We just received a message from Saddam Hussein. The good news is that he’s willing to have his nuclear, biological, and chemical weapons counted. The bad news is he wants Arthur Andersen to do it.[2]” The dramatic demise of Andersen (along with the failures of companies such as Enron and Global Crossing) has raised concerns among managers throughout the world. They want to understand what caused the collapse of the company so that they can take actions to avoid similar fates. Over the years, Andersen’s business environment and strategy changed in material ways. Their management responded by making associated changes in their organizational architecture (decision right, performance evaluation and reward systems). Part 3 of this book has argued that ill designed organizational architectures can result in poor performance and even company failure. An important......

Words: 2907 - Pages: 12

Enron Corporation: Impact on Profession

...ACCT 4450 June 2009 Enron Corporation: Impact on Profession of Chartered Accountancy/Auditing References: • Case “Enron Corporation and Andersen, LLP – Analyzing the Fall of Two Giants” Beasley et al, Auditing Cases – An Interactive Approach,4th Edition • Article “After Enron” John Lorinc, CA Magazine, December 2002 • Film excerpt shown in class “Enron: The Smartest Guys in the Room” Peter Elkind & Bethany McLean; Alliance Atlantis Exercise: Your group will prepare a presentation to the class (max 5 mins) on the results of the discussion of your assigned question. All questions are examinable on the final exam: 1) Who was impacted by the fall of Enron? Who were the users of Enron’s financial statements? There was implied or explicit reliance placed on various parties by the shareholders. Who were some of the parties mentioned, and what complaints were raised about these parties (whether legal or ethical)? 2) What was the “tone at the top” at Enron? How did this contribute to their demise? Does a company’s corporate culture impact an auditor’s assessment of audit risk? Explain. 3) Assess audit risk at Enron. Explain the factors that contributed to your risk assessment. (Also reference the Arthur Anderson e-mail notes from the retention meeting.) 4) Kenneth Lay, Chairman of the Board and prior CEO, testified at hearings that “I can’t be responsible for things I didn’t know about.” Jeffery Skilling, former CEO also......

Words: 336 - Pages: 2

Case Analysisof Enron Corporation

...Name: Janet P. Cambangay Section & Year: BSBA-I Teacher: Sir Zadrack B. Fiel Subject: Management 1 Time Session: 2:00pm-5:00pm 07/23/2011 Weekend Class CASE STUDY I. TIME CONTEXT Regular Staff Meeting (TODAY) II. VIEWPOINT The different considerations being made by every section which results the 40% failure rate in selecting supervisors. In regards, with this, the department manager stabilizes that having a best technical people is just a trouble. It may only lead people to spend their time for technical works only which caused incompetency to manage. Second, is that the basis of seniority will only ignores everything learned about managing and it is unrealistic that the when the candidates get the job he will become capable and proficient in management. III. STATEMENT OF THE PROBLEM The poor quality of the twenty supervisors reporting to the section heads due to poor record in selecting good supervisors. IV. OBJECTIVES * Supervisors must have a high standard in terms of their performances, knowledge and skills in business management. * The promotion of supervisors must base with their capabilities and unique approach to their responsibilities in managing the business. * An excellent supervisor must gain the skills in management, technical and conceptual skills of business supervision. V. AREAS OF CONSIDERATION/ANALYSIS In attaining the higher position it accompanied by attaining the higher......

Words: 552 - Pages: 3

Enron Case

...Accounting Ethics Session 6 Governance, Accounting, and Auditing, Post-Enron Group 1: Student Name__Seven Autrey_____________________________________ Student Name__Duc Nguyen_____________________________________ Telling the Enron Story Name five ethical problems and the existing conditions that caused the Enron fiasco. Explain each. 1. Fiduciary Failure – the board of directors failed to safeguard the companies from many inappropriate practices. 2. High Risk Accounting – Enron allowed high risk accounting in that the partnerships with Chewco and LJM1 and LJM2 did not conform with accounting rules 3. Enron had extensive undisclosed off-the-books activity. There were billions of dollars in off-the-book assets and liabilities. 4. Excessive Compensation – There was a cash drain caused by the 2000 annual bonus and performance unit plan. 5. Lack of Independence – There were financial ties between Enron and board members. Arthur Anderson provided internal auditing services as well as consulting services. Accounting 1370 Accounting Ethics Session 6 Governance, Accounting, and Auditing, Post-Enron Group 1: Student Name__Carol Cates_____________________________________ Student Name__Brenda Bohm____________________________________ Telling the Enron Story Name five ethical problems and the existing conditions that caused the Enron fiasco. Explain each. 1. At Enron, a lack of integrity was built into the foundation of the......

Words: 8085 - Pages: 33

4.1: Enron Corporation and Anderson, Llp Analyzing the Fall of Two Giants

...1. Enron, an international energy company, faced a lot of business risks because of the industry they were in. Enron’s business model, an intermediary between buyers and sellers of energy and profiting off the price differences, was risky in itself because it exposed Enron to energy prices risks as well a fluctuating foreign currency. While continuing to expand their business, Enron began offering a variety of financial hedges and contracts to their customers. This new venture uncovered interest rate risks, environmental risks, and constant price wars. Enron Online launched in 1999, which revealed dangerous technological failure risks. Enron decided to use Special Purpose Entities for borrowed funds. These SPEs were a great risk because the likelihood of materially misstating their financial statements increased significantly due to liabilities not being reported as cash inflows were coming in. These SPEs, as well as many other business endeavors by Enron, relied heavily on their guarantees of stock. If stock prices were to fall under a certain level, obligations made by Enron would become payable (Seabury). Once Enron’s risks were realized the company experienced pressure to report more stable and prosperous financial statements. They wanted to continue attracting investors and increase their competiveness in the marketplace, which drove management to enter into aggressive accounting schemes that ultimately led to their downfall in 2001. 2. The case explains how......

Words: 1745 - Pages: 7

Enron Corporation and Andersen, Llp Analyzing the Fall of Two Giants

...The case of Enron Corporation and Andersen, LLP can be noted as one of the most infamous fraud scandals in US history. Investors lost millions of dollars and ruined the public’s trust. Enron was once the seventh largest public company in the United States and Andersen LLP was the world’s largest and most respected business organizations. Enron’s stock prices soared to approximately $100 to less than $10 in 2001. How did these two big giants fall into oblivion and what could have been done to avoid the disaster of these companies? Enron Corporation was formed as the result of the July 1985 merger of Houston National Gas and InterNorth of Omaha, Nebraska. Their headquarters were located in Houston, TX. In its earlier years, Enron was a natural gas pipeline company whose primary business strategy involved entering into contracts to deliver specified amounts of natural gas to businesses or utilities over a given period of time. Enron soon became involved in in the transmission and distribution of electricity in addition to gas in the US as well as the development, construction, and operation of power plants and pipelines worldwide. Enron’s CEO was Jeffrey Skilling who only held his position for six months and Kenneth Lay, who was the CEO/Chairman of Enron from 1996 through 2001, was reinstated to CEO after Skilling’s resignation due to “purely personal” reasons. Andersen. LLP was originally founded as Andersen, Delaney & Co. in 1913 by Arthur Andersen, an accounting......

Words: 1125 - Pages: 5

Enron Corporation

...Enron Corporation (Former NYSE ticker symbol ENE) was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000staff and was one of the world's leading electricity, natural gas, communications and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal". Enron has since become a popular symbol of willful corporate fraud and corruption. The scandal also brought into question the accounting practices of many corporations throughout the United States and was a factor in the creation of the Sarbanes-Oxley Act of 2002. Enron filed for bankruptcy protection in the Southern District of New York in late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It emerged from bankruptcy in November 2004 after one of the biggest and most complex bankruptcy cases in U.S. history. On September 7, 2006, Enron sold Prisma Energy International Inc., its last remaining business, to Ashmore Energy International Ltd. Following the scandal, lawsuits against Enron's directors were notable because the directors settled the suits by paying very significant sums of money personally. The scandal also caused the......

Words: 3493 - Pages: 14

Andersen Case

...Capstone case study on organizational architecture Arthur Andersen LLP Introduction and Overview It is difficult to find an example of a more spectacular business failure than the recent collapse of Arthur Andersen. Within a few years, Andersen moved from one of the largest professional service organizations in the world to almost complete collapse. The impact of the firm’s failure on its employees, customers, investors, and the general public is hard to overstate. The once proud reputation had been reduced to shambles. Even the President of the United States joked: “We just received a message from Saddam Hussein. The good news is that he’s willing to have his nuclear, biological, and chemical weapons counted. The bad news is he wants Arthur Andersen to do it.” The dramatic demise of Andersen (along with the failures of companies such as Enron and Global Crossing) has raised concerns among managers throughout the world. They want to understand what caused the collapse of the company so that they can take actions to avoid similar fates. Over the years, Andersen’s business environment and strategy changed in material ways. Their management responded by making associated changes in their organizational architecture (decision right, performance evaluation and reward systems). Part 3 of this book has argued that ill designed organizational architectures can result in poor performance and even company failure. An important question is whether Andersen’s......

Words: 2951 - Pages: 12

Enron Corporation Case Study

...Enron Corporation case study • The Enron debacle created what one public official reported was a "crisis of confidence" on the part of the public in the accounting profession. Lists the parties who you believe are most responsible for the crisis. Briefly justify each of your choices. The debacle of Enron, a US firm is looked upon as the worst debacle and fall out in the history of US bankruptcy filed cases. There are many parties involved when it concern to Enron debacle, which was accorded to accounting instability and the compromising factor of accounting profession itself. Out of the many parties in the league and the major force behind the debacle of Enron concern Andersen's, the accounting and auditing firm that once deserved name in the industry for its conscience in accounting professional services and auditing. As the case relates to, accounting audit for Enron is attended by Andersen's since long enough. However, the interesting feature is that some compromise in the profession of accounting services by Andersen's was notable, given that there are noteworthy feature of stock manipulation, especially in financial statements of Enron attended and audited by Andersen's. The statement and restatement of Enron also gives some probable indication for manipulation of accounting, where debate and counter debate in that regard from the prying eye of the media was a common feature. Thus, the involvement of Andersen's in Enron consultancy and professional auditing makes it...

Words: 2622 - Pages: 11

Fairy Tail | Tracey Ullmans Show - Season 3 | HomePage