Contemporary Auditing Solotion 1.1 Enron - 3243 Words

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. â€Å"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†¦show more content†¦4. When Spacek retired in 1973, Arthur Andersen Co. was one of the largest and, arguably, the most prominent accounting firm worldwide 5. The predecessor of Enron Corporation was an Omaha-based natural gas company created in 1930; steady growth in profits and sales and numerous acquisitions allowed Enron to become the largest natural gas company in the United States by the mid-1980s. 6. During the 1990s, Kenneth Lay, Enron’s CEO, and his top subordinate, Jeffrey Skilling, transformed the company from a conventional natural gas supplier into an energy trading company. 7. Lay and Skilling placed a heavy emphasis on â€Å"strong earnings performance† and on increasing Enron’s stature in the business world. 8. Enron executives used hundreds of SPE’s (special purpose entities) to arrange large and complex related party transactions that served to strengthen Enron’s reported financial condition and operating results. 9. During 2001, Enron’s financial condition deteriorated rapidly after many of the company’s SPE transactions unraveled; in December 2001, Enron filed for bankruptcy. 10. Following Enron’s collapse, the business press and other critics began searching for parties to hold responsible for what, at the time, was the nation’s largest corporate bankruptcy. 11. Criticism of Andersen’s role in the Enron debacle focused on three key issues: the large amount of consulting revenue the firm earned from Enron, the