Enron research project - Sch-Mgt 541: Auditing Research...

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Sch-Mgt 541: Auditing Research Project Professor Piercey What Enron Did To the World Min Bae Dylan Normandin Lauren Plumley Erin Schweinler Jenifer Yang
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2 Abstract On December 2 of 2001, Enron Corporation filed for bankruptcy protection under Chapter 11. Enron had been considered a well-established company with stable earnings with no extensive liabilities and was once the sixthe largest company in the United States. However, this image was shattered and Enron's stock plummeted; Enron's shares dropped from over $90 to pennies. The fall of Enron was absolute when it revealed that much of its profit and revenue was the result of deals with special purpose entities. Enron created these entities to fulfill narrow, specific or temporary objectives designed to isolate financial risk: bankruptcy. In addition, Enron did not report any of its losses or debts; thus, their financial statements were false. The fall of Enron represented more than just the end of a successful corporation. The scandal resulted in the termination of one of the world’s top five accounting firms, Arthur Andersen. This case explores what happened to Enron in detail, and also what may be learned from this failure, and what effect will these events have on the future of auditing. In the Beginning There was a time when Arthur Andersen LLP was one of the “Big Five” accounting firms. Then known as Andersen, DeLany & Co., it was founded in 1913 by Arthur Andersen and Clarence DeLany (Ringle, 2002). The firm later changed its name to Arthur Andersen & Co. in 1918 when DeLany left the company (Arnold, 2002). The founder, Arthur Andersen, had an unwavering faith in education and a zealous support for high standards in the accounting industry (Grace, 2002). Proving this in his own life, he became the youngest CPA in Illinois at the age of 23 (Ringle, 2002). Promoting his beliefs with strong conviction to be responsible to investors, not clients, and to emphasize on honesty and audit independence, he was often recognized for encouraging his employees to “think straight and talk straight,” (Gullapalli, 2005). It was only a matter of time until these moral principles just turned into an ethical façade. After Arthur Andersen's death in 1947, Leonard Spacek continued to support and build on the company’s reputation, emerging as managing partner at only 39 (Grippo, 2004). Arthur Andersen Co. went from the 20th-largest firm in the world in 1947 to a leader among the Big
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3 Eight during Spacek's tenure. The firm opened its first international offices in the 1950's becoming the world's biggest business services firm (Goff, 2002). Despite Arthur Andersen's beliefs in auditor independence and focus, eventually Arthur Andersen LLP lost its true values and struggled to balance the faithfulness to accounting standards and its clients' desires to maximize profits (Landsman, 2003). Over the years, unfortunately, Arthur Andersen LLP became involved in fraudulent accounting and auditing in various companies, most notably
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Enron research project - Sch-Mgt 541: Auditing Research...

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