Sunday, February 24, 2019
Enron Corporation and Anderson case study Essay
Analyzing the fall of two GiantsThis case results in the make of Sarbanes-Oxley Act 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 dividing line venture Enron faced, and how did those risks change magnitude the likelihood if material misstatements in Enrons financial statements?The melodic phrase risks Enron faced are as followingUsing hard business modelextensive employ supernumerary purpose entitiesusing untraditional ventures to expand business rapidlylimitations in GAAPThe multiplex business model used in Enron lead overstate its taxation while not tell on the exact value of debt. Numbers of special purpose entities are used to keep debt off the books. The untraditional ventures odourise the business expansion rapidly and risky. Also, the limitation of GAAP makes it possible that focusing took advantages of complex standards to hide the actu al 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 jury of directors? (b) Could the board of directors at Enronespecially the study committeehave prevented the fall of Enron? (c) Should they have known most the risks and seeming(a) 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 affect shareholders (dividends) ensconce on which executives to hire / fireThe fall of Enron could have been prevented by the board of directors. The board should responsible 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 high risk tra nsactions. They should have known about the risks and apparent lack of independence with Enrons SPEs. They should recognize that the high risk transactions with SPE will have huge effects on Enron. Meanwhile, they should require SPE to disclosure financials properly.4 What are the auditor independence issues surrounding the provision of extraneous auditing services, internal auditing services, and trouble consulting services for the same client? Develop arguments for wherefore auditors should be allowed to per design 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 the contrary , some people may nurse 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 take away 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 dishonored reputations. In fact, some people believe the fall of Enron occurred because of a form of run on the bank. Some argue that Andersen experienced a resembling run on the bank as many overstep clients quickly dropped the firm in the wake of Enrons collapse. Is the run on the bank similitude 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 vocation partner confidence.Its stocks experience a sharp slump. Meanwhile, Standard & Poors re-class ify Enrons stocks as junk bonds, making almost every shareowner feel unsafe. The price drops to $0.26 per share in couple of days. Even worse, debts holders draw 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 restore the public trustingness in the auditing profession and in the nations financial reporting arrangement? The Sarbanes-Oxley Act of 2002 is a good way to restore the public trust in the auditing profession and financial report. The Act required top management to certify the accuracy of financial information individually, and increase the independence of outdoor(a) auditors. As the most severe act in history ever, I believe SOX can help to restore the public trust.