Ac573

1. What did Arthur Andersen contribute to the Enron disaster?

Arthur Anderson failed to properly serve Enron, the public, the stakeholders, and the shareholders. It allowed Enron to misstate revenues and assets and hide liabilities through the use of non-arm’s length SPEs. Also, Arthur Anderson did not listen to its quality control that warned against it, but overruled him instead. In essence, the really became more of Enron employees than their auditors for fear of losing a client because they did not tell them no its not ok and give them an undesirable opinion on the audits.

4. Why should an auditor make decisions in the public interest rather than in the interest of management or current shareholders?

An auditor should make decisions in the public interest rather than in the interest of management or current shareholders because the public share a great loss when the company fails. In the Enron case, thousands of people lost their jobs, pensions, and even though management had to face prosecution, their families live well with the unreasonable bonuses and salaries that those executives brought home. The survival of these companies affects so many people other than management that it is imperative that the auditor makes decisions based on that.

5. Why didn’t the Arthur Andersen partners responsible for quality control stop the flawed decisions of the audit partners?

The Arthur Anderson partners responsible for quality control did not stop the flawed decisions due to lack of courage, as the text states. The people involved had so much power and control that they could lose their jobs if they spoke up. Bass questioned Fastow’s role in the SPEs and was immediately removed from that client case. Also, management could over-rule any quality decision that was made. The employees appeared to be between a rock and a hard place because management had so much control and input on audit findings. So they could speak up and potentially be fired, or they could be quiet...