Enron Corporation

1. The Enron debacle created what one public official reported was a "crisis of confidence" on the part of the public in the accounting profession. List the parties who you believe were most responsible for that crisis. Briefly justify each of your choices.

- SEC. Failed enforcement

- Andersen firm. Fixed financial statements.

- Corporate executives. Fraud financial reporting.

- Auditors and lawyers who failed make the right decision.

2. List three types of consulting services that audit firms are not prohibited from providing to clients that are public companies. For each item, indicate the specific threats, if any, that the provision of the given service could pose for an audit firms's independence.

• Services related to accounting entries. Bookkeeping and/or financial statements of the client.

• Advising on financial information system would make audit firm to question the system used by a client.

• Advising on management/human resources hire resources.

• Investment broker adviser.

• “Expert” Advising not based on audit.

3. For purposes of this question, assume that the excerpts from the Power Report shown in Exhibit 3 provide accurate descriptions of Andersen's involvement in Enron's accounting and financial reporting decisions. Given this assumption, do you believe that Andersen's involvement in those decisions violated any professional standards? If so, list those standards and briefly explain your rationale.

Independence. Andersen failed to report accounting/financial statements accurately.

Reporting. There were no disclaimer of opinion.

Quality Control. No correct supervision. No issues where addressed.

There was no “Internal Control Evaluation.” Anderson’s employees failed to research more information on the systems implemented by Enron.

4. Briefly describe the key requirements included in professional auditing standards regarding the preparations and retention of audit workpapers. Which party "owns" audit workpapers: the client or the audit firm?

According to PCAOB the auditor’s firm “owns” the audit paperwork.

- Planning and understanding of procedures (Ex: opinions on the audit).

- Audit is reviewed (Supervision).