Contemporary Auditing Solotion 1.1 Enron Essay

3240 Words Feb 7th, 2015 13 Pages
CASE 1.1

ENRON CORPORATION

Synopsis

Arthur Edward Andersen built his firm, Arthur Andersen & Company, into one of the largest and most respected accounting firms in the world through his reputation for honesty and integrity. “Think straight, talk straight” was his motto and he insisted that his clients adopt that same attitude when preparing and issuing their periodic financial statements. Arthur Andersen’s auditing philosophy was not rule-based, that is, he did not stress the importance of clients complying with specific accounting rules because in the early days of the U.S. accounting profession there were few formal
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During the early months of 2002, Andersen became the focal point of attention among law enforcement authorities searching for the parties responsible for Enron’s sudden collapse. The accusations directed at Andersen centered on three key issues. The first issue had to do with the scope of professional services that Andersen provided to Enron. Critics charged that the enormous consulting fees Enron paid Andersen impaired the audit firm’s independence. The second issue stemmed from Andersen’s alleged role in Enron’s aggressive accounting and financial reporting treatments for its SPE-related transactions. Finally, the most embarrassing issue was the massive effort of Andersen’s Houston office to shred Enron audit documents, which eventually led to the demise of the firm.

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Enron Corporation--Key Facts

1. Throughout Arthur E. Andersen’s life, “Think Straight, talk straight” served as a guiding principle for himself and Arthur Andersen & Co., the accounting firm that he founded.

2. Arthur Andersen’s reputation for honesty and integrity resulted in Arthur Andersen & Co. gaining stature in the business community and growing into one of the nation’s leading accounting firms by the time of his death in 1947.

3. Leonard Spacek succeeded Arthur Andersen as managing partner of Arthur Andersen & Co. in 1947

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