CONFLICT OF INTEREST
Oversimplifying the case of Enron and Arthur Andersen, Enron was using some accounting practices
that were questionable. Because Arthur Andersen was an independent auditor, they were
responsible for reporting any questionable accounting practices might be risky to the shareholders of
Enron. The Security and Exchange Commission was responsible for requiring and publishing accurate
information about Enron's accounting information. In the end, a few Enron employees went to jail,
and Arthur Andersen stopped doing business under that name.
Identify what you consider any conflicts of interest in the case of Enron and Arthur Andersen.
What could have been done to avoid the conflicts of interest you identified?
How would you change the laws to correct the problems that came up in the Enron and Arthur
Andersen case?
Explore how Enron and Arthur Andersen might have been encouraged to act ethically other than
direct legal pressures.
In this discussion, I will be reviewing the case of Enron and Arthur Andersen to identify if there were
any conflicts of interest that resulted or encouraged the questionable accounting practices by Eron. I
will be reviewing laws to correct the problems and finally exploring other non-legal options that can
promote ethical behaviour.
In the case of Enron and Arthur Andersen, there are a few identifiable conflicts of interest, which
would have led to the questionable accounting practices by Eron that was not reported by Arthur
Andersen, its external auditor. Eron was one of Andersen’s biggest clients receiving $1 million dollars
a week in audit fees. Eron also pays fees Anderson for consulting services via Accenture. This is my
view represent a conflict of interest because Andersen offers Eron both audit and non-audit service
which could easily compromise the quality of audit service done by Arthur Andersen for fear of
losing Eron as a client. Also, because Eron is in the energy industry, Andersen has also benefited by
