Impact of Arthur Andersen vs Enron on Auditing
Added on 2020-04-07
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AUDIT & ASSURANCE CASE STUDYEffects Of ArthurAndersenVs EnronCase In Auditing FieldStudent’s NameInstitutional Affiliation
AUDIT & ASSURANCE CASE STUDYArthur Anderson and Enron case file formed the basis of the firm's professionalism, ethics, and due diligence while relating to clients. It further illustrates the sense of responsibility of the firms to the clients without favor or conflict of interest.Agency being the relationship between the principal, the agent and 3rd party should see the icon of mutual benefit among the parties but not sufficing the others as it is being witnessed in the case involving Enron. Mutual benefit relationship theory occurring in Environ case informs us of the existenceof mishaps in most firms thus forgetting the shareholder needs and expectations. In this case of Arthur Andersen Vs. Enron we clearly see the management not caring Salter (2008.Pg 23) on facilitating the process of increasing returns of the shareholders instead they concentrate on misappropriation by cooking the books of the accounts as well as attempts to offer incentives and havens to agents so as to act in the best interest of the them.Agency involves the delegation of responsibilities as well as decision-making thus as the agent represents the principal it is expected for their agent to do so wholesomely without favor or with the expectation of something in return. Enron was supposed to represent the parent(principal) company on conducting the audit services free from any other tasks that are contrary to audit policies set in place,Enron firm instead has been doing its own things to extent of benefiting at the expense of the principal Stein(2007.Pg 1390) Information is deemed powerful hence the hypothesis behind perfect access to information to all the parties as well as its disclosure of any aspect of information that is deemed material is important during the audit. All the parties bounded by the agency relation as well as the users of the information are entitled to correct and material information. Enron firms transaction were seen to be private thus nodisclosure was ever made to the extent of persons questioning the essence of non-disclosure only to realize it was accounting hoax tactics both through the books of accounts and by virtue of word of mouth. This denial to issue the correct, material and in context assurance information to the users brought the firm to a situation of non-compliance.Insurance hypothesis is applied where audit loss has occurred thus allowing the investors to sue auditor so as to recover losses resulting from misstated financial statements hence reducing investors risks. In Arthur case, this was seen to especially safeguard client’s interest due to loss of closure of business and bankruptcy that was resulted from wrong disclosure and intentional interference of the books of accounts hence this theory had to apply to rescue 3rd parties in investors.As a result of what befell Arthur Andersen, Enrol,Tyco as well as WorldCom the need to enact public company accounting reform and investor protection act was brought into legislation so as to
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