Enron's Collapse: A Case Study on Auditing and Implications

This case study delves into the Enron scandal, dissecting the underlying causes of its collapse, including accounting problems, management culture, preferential treatment, and shady management operations. It identifies key players like Arthur Andersen LLP and David B. Duncan, discussing the immediate implications for Enron and its stakeholders, such as loss of investor trust, SEC investigations, credit rating downgrades, bankruptcy, and massive decline in share price. Furthermore, the study explores broader implications for the corporate world, including the introduction of the Sarbanes-Oxley Act, increased capital market volatility, and reduced investor trust. It also hypothesizes auditing activities that might have reduced the likelihood of the collapse, such as evaluating mark-to-market transactions, estimating special purpose entities transactions, analyzing management compensation, using regulatory audit procedures, and detecting asset and debt levels.

C A S E S T U D Y O F E N R O N
Auditing

Identifying the underlying causes of the collapse
The cause of Collapse
 Accounting problems
 Management culture
 Preferential treatment
 Shady management operations
The major Players in the scandal
 Arthur Andersen LLP
 David B. Duncan

Discussing the immediate implications for the entity and
other stakeholders
Implication of Enron
 Loss of trust from investors
 SEC investigation
 Downgrade of credit rating
 Bankruptcy
Implication of Stakeholders
 Massive decline in share price
 Loss of creditors
 Blocking of payments

Discussing the implications
Corporate world
 Introduction of Sarbanes-Oxley Act
 Massive volatility in capital market
 Reduction in trust of investors
Auditing profession
 Reduction in trust of auditors
 Criticising of Enron audit partners
Corporate governance
 Incorporation of corporate governance in
organizations
 Reduction in shady businesses

Hypothesise the auditing activity that might have reduced
the likelihood of the collapse
The auditing activities could have used by
auditors are
 Evaluating the mark to market transactions
 Estimating the special purpose entities transactions
 Analyzing the Management compensation
 Using Regulatory audit procedures
 Detecting assets and debt levels

Bibliography
Kumar, H. and Aldous, D., 2015. Exploratory
Data Analysis of Enron Emails. University of
California-Berkeley.
Markham, J.W., 2015. A financial history of
the United States: From Enron-era scandals
to the subprime crisis (2004-2006); From the
subprime crisis to the Great Recession (2006-
2009). Routledge.

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