Enron Corporation and Anderson case study Essay

Analyzing the f tout ensemble of two GiantsThis case results in the publishing of Sarbanes-Oxley make up of 2002 and relevant to the Securities and Exchange Commission. Also, it is related to SAS 103Auditing, Quality Control, and Independence Standards and Rules.1 What were the crease risk Enron faced, and how did those risks increase the likelihood if significant misstatements in Enrons financial statements?The business risks Enron faced are as followingUsing mingled business modelextensive using special purpose entitiesusing untraditional ventures to expand business rapidlylimitations in generally accepted accounting principlesThe complex business model used in Enron lead expand its revenue while not disclose the exact value of debt. Numbers of special purpose entities are used to keep debt off the books. The untraditional ventures incense the business expansion rapidly and risky. Also, the limitation of GAAP makes it possible that way took advantages of complex standards to hide the actual economic substance. All of these above increase the likelihood of material misstatements in Enrons financial statements.2 (a) What are the responsibilities of a companys card of directors? (b) Could the age of directors at Enronespecially the audit directionhave prevented the fall of Enron? (c) Should they have known about the risks and ostensible lack of independence with Enrons SPEs? What should they have done about it? The responsibilities of a companys board of directors include Protect the shareholders assets and provide a return on investment Make important decisions that coin shareholders (dividends) Decide on which executives to hire / fireThe fall of Enron could have been prevented by the board of directors. The board should thinkworthy for the companys financial reports. However, they are failed to disclose the off books liabilities to the public, which ledthe Enron fall. What is more, the board and the audit committee do not question any of the hig h risk transactions. They should have known about the risks and probable lack of independence with Enrons SPEs. They should recognize that the high risk transactions with SPE will have capacious effects on Enron. Meanwhile, they should ask SPE to disclosure financials properly.4 What are the auditor independence issues surrounding the provision of outside(a) auditing service, internal auditing services, and management consulting services for the same client? Develop arguments for wherefore auditors should be allowed to perform these services for the same client. Develop separate arguments for why auditors should not be allowed to perform non-audit services for their audit clients. What is your view, and why? Auditors should not be allowed to perform non-audit services for their audit clients, because auditors need to be independence.If an auditor provide management consulting services for his audit client, he is just audit what he have done, which ,I think, is meaningless. On th e contrary, some great deal may agree that auditors should be allowed to perform their services for the same client. First, choosing one firm to do all of these services can save a great deal of money. Second, the auditors will much more familiar with the clients business and its industry, which make their work efficient.6 Enron and Andersen suffered severe consequences because of their perceived lack of integrity and alter reputations. In fact, some people believe the fall of Enron occurred because of a form of run on the lingo. Some argue that Andersen experienced a similar run on the bank as some(prenominal) top clients quickly dropped the firm in the wake of Enrons collapse. Is the run on the bank similarity valid for both firms? Why or why not? Yes, I think the run on the bank analogy valid for both firms. The fraud of Enrons financials leads a collapse of investor, customer, and trading cooperator confidence.Its stocks experience a sharp slump. Meanwhile, Standard & Poor s re-classify Enrons stocks as junk bonds, make almost every stockholder feel unsafe. The price drops to $0.26 per share in couple of days. Even worse, debts holders dismount to call the loans because of the diminished stock price, which lead the collapse of Enron directly. Andersen experiences a similar situation. The damaged reputation of Andersen resultsin losing many top clients and partnerships oversea.9 What has been done, and what more do you believe should be done to reclaim the public trust in the auditing profession and in the nations financial reporting system? The Sarbanes-Oxley Act of 2002 is a good way to restore the public trust in the auditing profession and financial report. The Act necessitate top management to certify the accuracy of financial information individually, and increase the independence of outside auditors. As the most severe act in history ever, I believe SOX can help to restore the public trust.