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Accounting And Business Ethics: Enron's Scandal

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ENRON/ ANDERSEN SCANDAL

To preserve the integrity of his reports, the accountants must insist upon absolute independence of judgment and action. The necessity of preserving this position of independence indicates certain standards of conduct. If the confidence of the public in the integrity of accountants’ reports is shaken, their value is gone (Arthur Andersen in a 1932 Lecture on Business Ethics). The purpose of accounting is fairly simple, that is to measure that the portrait the company’s accountants’ paint in the financial statements is as accurate as possible (Ronald Duska, Brenda Shay Duska and Julie Ragatz 2011). In the financial statement audit, the auditors are assigned to assure that the financial statements provided by the management …show more content…

Enron was a Houston-based natural gas pipeline company formed by merger in 1985. By early 2001, Enron had morphed into the 7th largest U.S. Company and the largest U.S. buyer and seller of natural gas and electricity. According to New York Times (2002), Enron announced a huge third-quarter overstating in its earnings by almost $600 million over five years. The Security Exchange Commission (SEC) then began an inquiry into Enron’s accounting practices on October 22, 2001. Enron filed for bankruptcy on December 2, 2001 and left all the investors and retirees with worthless stock. Enron was charged with securities fraud, such as fraudulent manipulation of publicly reported financial results and lying to SEC. And Enron was one of Arthur Andersen Public Accounting Firm’s clients. In this article, I would like to be more concern in the auditing and accounting …show more content…

It recognizes two kinds of independence; independence in fact and independence in appearance. In this case, both Enron and Arthur Andersen had been not independent in fact and in appearance. The shareholders and management of Enron should not choose Arthur Andersen as the external auditor since the chairman of audit committee, CFO and most of the accounting staffs were used to work in Arthur Andersen public accounting firm. Arthur Andersen should also refused the offer to become the external auditors of Enron because it will be not independent for them to audit the company since there was an indirect relationship between the people who used to work in Andersen with the public accounting firm itself. It will lead them to be not independent in appearance. In addition, Arthur Andersen also intentionally provide assurance that the financial statements provided by the management were fairly presented and in accordance with the GAAP eventhough the report had been manipulated. It makes Enron and Andersen not independent in fact because they did not report the company’s real condition, they were not objective. From the beginning, they were not supposed to give and receive offer for auditing Enron company. Enron should look for another public

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