The Case of Enron and Arthur Andersen Essay Example | Topics and Well Written Essays - 1500 words

The Case of Enron and Arthur Andersen - Essay Example The greed that was evident did not benefit any one party at all. When the company shares lost ground in trading, the Securities and Exchange Commission (SEC), the Texas State Board of Public Accountancy and the US congress were on hand to instigate reforms that had the aim of ensuring that occurrences like those at Enron could not occur again. Arthur Andersen, the auditor at Enron, could be said to have received what it deserved in terms of being forced out of the market place due to bankruptcy. Additionally, the audit firm became a template of negative audit firms. The US federal government crafted regulatory legislation that is being taken up by other countries to prevent such occurrences in the future. For example, Mexico adopted those regulations in 2006 popularly referred to as the Sarbanes-Oxley Act. Discussion Enron as a corporate entity was not guilty of any major crimes that were blatantly obvious. On the most part, the company was indicted for misleading the outside forces charged with consulting for it and also misrepresented its financial situation1. These misrepresentations and falsehoods cannot entirely be considered as crimes. On the contrary, fraud can be considered as a crime but the very act of proving a criminal intent to defraud is very difficult. On the other hand, Arthur Andersen was convicted of a repeated single crime which entailed the obstruction of justice. This was largely due to the destruction of Enron documents that the audit firm continuously did. The shredding of those documents, which the accounting firm was well aware could be used in an SEC investigation, was in itself a crime. The case of Enron led to a number of individuals that were charged with different tasks to be charged with serious crimes with some of them pleading guilty to some. Mostly, many pleaded guilty with conspiracy to mislead that they did by presenting unfair reports on the company finances. Both Enron and Andersen had total disregard for any ethical conduc t that was expected of them. There is no need for detailed presentation of the breaches in ethics as they were pretty blatant. This discussion is not focused on ethics despite the fact that legal ethics, financial analysis ethics and banking ethics were totally disregarded. Since the breach of ethics is not a crime, it is not pertinent to dwell on it. Enron is clearly in violation of the guidelines that are laid out in the Generally Accepted Accounting Principles (GAAP)2. There are three instances of the breach of GAAP that are notable in the conduct of Enron. The first is that the Special Purpose Entities? (SPEs) accounts were incorrect. The equity method of accounting was selectively utilized in the SPE accounting as well as the failure of consolidation and failure of the elimination of the impacts associated with the transactions carried among the entities. The second is that there was partial disclosure of accounts and the last is that the financial reporting was not fair. In do ing the above, Enron and Andersen can be thought of having viewed GAAP as being merely rules and not regulations. They also leaned towards the interpretation of GAAP in a more aggressive manner than normally envisaged. Additionally, they disregarded the fairness principle that is central to GAAP and in doing this, they ignored the fact that fairness is emphasized more that rules as well as accounting that focuses on the economic