Menu

Enron Case Accounting Controversies

0 Comment

Accounting is governed by United States generally accepted accounting principles. The External auditor issues an opening as the fairness of the financial statements. The following paragraphs explain that some persons preparing the accounting statements do not follow the U.S. GAAP. The Enron and Arthur Andersen hit the headlines for their accounting controversy. The external auditors were declared not guilty of audit fraud in the Enron Case. Also, the Enron external auditor, Arthur Andersen, was convicted in June 2002 by the federal jury in Houston, Texas. In addition, the users of the financial statements need unbiased or fairly presented financial statements. Further, the suppliers need the financial statements to determine if the company will not file for bankruptcy. Furthermore, Enron violated generally accepted accounting principles. Finally, Generally accepted accounting principles are the foundations of the income statement, balance sheet and statement of cash flows.
The external auditors were declared not guilty of audit fraud in the Enron Case. The Enron Company hit the headlines several years ago. Enron’s external auditors, Arthur Andersen, entered a plea deal with the judge. The Arthur Andersen auditing engagement team was led by Partner David Duncan. However, it was later proven by the court that the external auditor, Arthur Andersen, was innocent of any wrongdoing. The government actions before the case was settled had precipitated to the disintegration of Arthur Andersen. Tens of thousands of Arthur Andersen employees started trooping to the unemployment lines after losing both their Arthur Anders accounting jobs but also their pensions as well. Arthur Andersen stopped getting new auditing clients in August of 2002. The auditing firm was sentenced to pay $500,000 and sentenced to five years probation. Surely, the external auditors were not guilty of audit fraud in the Enron Case ("Stopping IRS Misconduct," 2007, p. A17).
Also, the Enron external auditor, Arthur Andersen, was convicted in June 2002 by the federal jury in Houston, Texas. The company was convicted for obstruction of justice for deliberately shredding all their accounting work done in auditing the Enron Company. The Enron company had filed for bankruptcy. The accountants of the company did not follow United States generally accepted accounting principles or GAAP in the preparation of their financial statements. The financial statements include the balance sheet, the income statement and the statement of cash flows. Generally Accepted Accounting Principles show the how, when, where and why and business transaction or event is recorded a0s such. The work of the external auditor is to give an opinion stating that the financial statements of the company are fairly presented. The reason for the fairness is that the financial statements are used by many sectors of American and International societies. Glaringly, the Enron external auditor, Arthur Andersen, was convicted in June 2002 by the federal jury in Houston, Texas (Peterson, 2002).
In addition, the users of the financial statements need unbiased or fairly presented financial statements. The creditors need the financial statements to determine whether to approve the company’s new loan application. The board of directors need the financial statements to determine whether the company has been generating net profits for the past year or years of business operations. The suppliers need the financial statements to determine if the credit line application of the company will be approved. For, a company that shows a net loss income statement will raise doubts that the