Enron Case

CASE#1

ENRON CORPORATION

1. Different parties were responsible for the occurrence of Enron crisis. Listed below are some of the parties who were responsible for the Enron fraud.

a. The Enron Management: There is no doubt that the Enron management staged the fraud. The management was responsible for the misrepresentation of financial statement/ documents and wrong accounting practice. In Early 2002, their abusive accounting and financial reporting practices surfaced. Moreover, the management influenced the auditors to make business judgment in favor of the corporation and thus influenced auditor’s independence. The top three executives created a culture that fostered rule breaking.

b. The Engaged Andersen’s auditors: The auditors lacked appropriate professional judgment in connection with its Enron audit. They failed to maintain their independence by issuing an unqualified opinion despite the disturbing financial statement of Enron. They failed to result a transparent is not reliable financial statement. Moreover, the auditors were assisting and providing additional consulting services to its client to build the financial statement. They should have promptly raised concern to the senior management of Andersen.

c. Senior Management: Although the senior management had no power to force Enron to adhere to a higher standard, they did not immediately decide to withdraw from their client (Enron). Upon realization of concerns being raised, they failed to further investigate these concerns. The senior management should have raised this concern to the audit committee and the board of directors of Enron.

d. The Regulatory agencies and accounting groups: The SEC and the FASB provided little in the way of formal guidance for companies to follow in accounting and reporting for SPEs. The gaping loophole in accounting practice allowed companies to create SPEs which had controversial exception. This exception worked in favor of Enron. The lack of PCAOB to...