Arthur Andersen's Troubles Essay

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Arthur Andersen’s Troubles

1. Arthur Anderson (AA) should have been able to help prevent to some extent the Enron disaster, however, they either missed or ignored Enron’s manipulations allowing the fraud to continue as long as it did. AA contributed to the disaster by approving the structure of many Special Purpose Entities (SPE), which Enron used for off-balance sheet financing. The SPEs did not meet the requirements of an independent company and should have been consolidated with Enron’s financial statements. Shares transferred to SPEs were not valued on the financial statements in compliance with GAAP, and side deals between Enron and banks were not brought to the attention of the board of directors; these issues should have been
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If the board of directors was made aware of this, they could have taken measures to tighten controls. One of the most faulty decisions made by AA was to allow the partner in charge of the audit to override a ruling of the quality control partner. This gave the person who was most concerned with the potential loss of revenue from Enron, who was David Duncan, the power to make the most sensitive decisions. Carl Bass, the quality control partner, was aware that the CFO was involved in conflict of interest situations and that the deals made between Enron and the SPEs were compromised. He sent a memo of the situation and a proposed change in accounting, however, Duncan overruled Bass, and the accounting was not changed. Duncan should not have been able to overrule the quality control partner, who should have had a greater say in this sensitive decision, and if he had, the Enron manipulations may have not carried on as far. 3. The prime motivation behind the decisions of AA audit partners was not the public interest, but rather revenue generation for the company, as well as the desire to keep their jobs. The CEO of AA was interested in revenues, discussing only numbers at partners meetings, not quality. Because the CEO is at the top of the company and pressing this value of revenue generation onto the partners, the partners in turn were

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