Enron Case 1.1

631 Words3 Pages
1. The two parties who are, I believe, responsible for a “crisis of confidence” are Enron’s executives and Andersen & Co. Enron’s executives (including Ken Lay, Jeffrey Skilling, and Andrew Fastow) by discouraging their employees from “reporting and investigating ethical lapses and questionable business dealings” and they did this by keeping the company with the feeling of an “intimidating and arrogant” culture. Anderson was Enron’s Audit firm! They had allowed Enron to use these fraudulent financial statements for 15 years! It was Anderson’s responsibility to question any strange circumstances and reports and they failed to do so! 2. The three types of consulting services that audit firms are now prohibited from providing to clients that are public companies are as following: a. Designing information systems for the company: One threat associated with this service is that they would have to assess the system that they had created. This would be very difficult to keep unbiased. b. Executive search services: One threat associated with this service is that if they help find potential executives for a company that they audit, they might overlook some problems that those executives could be involved in. c. Internal audit services: One threat associated with this service is that it would be too tempting to falsify information if you are only accountable with yourself. An outside auditor is ALWAYS necessary. 3. Independence (.01) - Arthur Andersen’s auditors may have become too involved in Enron’s decisions for important accounting and financial reporting treatments. Internal control evaluation (.02) - one could argue that given the critical and seemingly apparent defects in Enron’s internal controls, Andersen auditors failed to gain a “sufficient understanding” of the client’s internal control system. Sufficient competent evidence
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