Enron Scandal: Auditing and Accounting Issues

Auditing Theory and Practice
Module Number

Executive summary
As the field of finance become more popular in last two decades, so the fraudulent
and scandalous activity amongst it. To check this frauds and scandals from happening, all the
financial companies employees the team of auditors from within and outside the company.
But even then, some companies still are not able to eradicate the scandals from happening
(Li, 2010). Most of the time these scandals happen due to the negligence of the auditors and
the firms doing the accounting for the company. This assignment uncovers one such scandal
known as Enron scandal. Enron scandal happened because the accounting practices adopted
by the company were false, incorrect and improper. It is found that in the given case,
auditors were not concerned with prepared falsified misstatement of the recorded items the
financial statements which are not correct, Enron continued its fraud activities and provided
shareholders with the statements that were misrepresented. This reveals that however,
auditors could have assisted company to comply with the accounting standards and maintain
the transparency in the books of account.

Table of Contents
Executive summary.........................................................................................................1
Introduction....................................................................................................................2
Main body......................................................................................................................2
Time line of events and factual issues that caused Enron Scandal....................................2
Penalties imposed on involved parties...........................................................................3
Relevant issues in Auditing and Accounting raised by the case........................................5
Root cause of the issues................................................................................................6
Judgement for the defendants........................................................................................7
Recommendations and possible improvements to:..........................................................7
 The audit strategy..............................................................................................7
 The audit programme.........................................................................................7
 Other effective measures....................................................................................8
Conclusion......................................................................................................................8
References....................................................................................................................10

Introduction
With the changes in the economic, all the companies needs to get their financial
reports audited with the auditors. All the auditors works in the best interest of the
stakeholders and stands in the fiduciary position to the stakeholders. They help companies to
set up true and fair view of the recorded items in the books of account of company. The
auditors are the highly responsible for the auditing work and helps Company to strengthen
transparency in their recorded books of accounts. In this paper study has done to understand
how a renowned company can be scandalised because of negligence on some auditor’s part.
This case helps to understand some theories and show their practical implication in real life
conditions. Arthur Andersen, the party found to be negligent professionally is undertaken in
this case, the penalties levied on it and the reasons of negligence and penalties are also
discussed in depth (Cunningham & Harris, 2006). This case threw light on the issues in
accounting and auditing, factors that contributed to the negligence on the part of auditors and
put forward some recommendations for how to improve auditor’s behaviour. Thus providing
a layout to improve the strategy, measures and programme of audit. However, auditors have
right to pass their audit qualified and non-qualified audit report to the company. This shows
the legal compliance and recording frameworks of company in their prepared financial
statements.
Main body
Time line of events and factual issues that caused Enron Scandal
It is also a matter of interest in this case that top management created a false growth bubble
and stated the false earning in market by providing the financial statements that were
misrepresented. So in order to check this kind of frauds from happening and it’s important to