Enron's Financial Scandal

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One of the fastest growing companies of the late 90s and early 2000s, Enron’s financial scandal, which was made public in the fall of 2001, brought about a huge shock to the American public. Enron’s attempt to hide their financial losses through methods such as mark-to-market and limited-liability partnerships hit them hard in the end, leading to eventual bankruptcy and complete downfall. Not only did its bankruptcy lead to the company’s demise, but it also played a notable role in the creation of multiple congressional bills regards to fraud and corporate accounting. This essay will discuss the brief history of Enron, key figures of the Enron scandal and their roles, the specifics of Enron’s unethical and illegal behavior, the failures of…show more content…
As an outside auditor, Arthur Andersen had the responsibility “to help investors identify stocks that are good investments” by thoroughly inspecting Enron’s finances (Healy). However, according to an article in New Republic, “independent auditing — epitomized in this case by Arthur Andersen — [became] a toothless formality.” Because of the incentives that these independent auditing firms received from consulting large corporations, they often over looked their role as auditors, since consulting fees, in the end, were more profitable (“The Real Enron Scandal”). While one may assume that Arthur Andersen may not have been able to notice the accounting faults of Enron due to Enron’s meticulous planning, such assumption is untrue. In “The Fall of Enron,” it is revealed that Watkins discussed the same accounting issue with James Hecker, an audit partner and a former colleague, who then communicated with the Enron audit team at Arthur Andersen about those issues. Moreover, some claim that Arthur Andersen did not apply strict accounting standards to Enron because the two companies had issues regarding the consulting fees for the service provided (Healy). A more notable and significant factor, however, is that Arthur Andersen shredded the documents that were necessary for SEC’s investigation of Enron, which eventually resulted in voiding the auditing license of Arthur Andersen (House). The company was known for considering reputation over profit, but the incident with Enron led them to fall from such reputable
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