Question

Oversimplifying the case of Enron and Arthur Andersen, Enron was using some accounting practices that were questionable. Because Arthur Andersen was an independent auditor, they were responsible for reporting any questionable accounting practices might be risky to the shareholders of Enron. The Security and Exchange Commission was responsible for requiring and publishing accurate information about Enron's accounting information. In the end, a few Enron employees went to jail, and Arthur Andersen stopped doing business under that name. Identify what you consider any conflicts of interest in the case of Enron and Arthur Andersen. What could have been done to avoid the conflicts of interest you identified? How would you change the laws to correct the problems that came up in the Enron and Arthur Andersen case? Explore how Enron and Arthur Andersen might have been encouraged to act ethically other than direct legal pressures.

Answer 1

The Enron scandal is the most significant corporate collapse in America since the failure of several savings and loan banks during the 1980s. Although there are several cause of the Enron collapse. Among them are the conflict of interest between the two roles played by Arthur Andersen, as auditor and also act as consultant to Enron; the lack of attention reflected in the behaviour of members of the Enron board of directors to the off-books financial entities with which Enron did business; and falseness by management in regard to the company's health and its business operations. In certain ways, the culture of Enron was the main cause of the collapse. The senior executives believed Enron had to be the best at everything it did and that they had save the reputations and the compensation as the majority successful executives in the U.S. When certain business and trading ventures starts poor performance, they tried to cover up their own failures.

In my opinion the prime mistake made by Arthur Anderson was the failure to recognize acknowledge the conflict of interest in giving consulting services to the same companies that they were auditing. The auditors already knew about the conflict. As a result unfortunately, the profits outweighed the ethical standards of the company. Anderson was manipulating the financials accounts of firms that they were auditing. Consulting was a more viable option for Anderson that resulted, in them letting the auditing side of their business suffer since consulting proved to be more advantageous and profitable. To avoid such conficts government regulations and rules are required to be updated for the new economy, not relaxed and eliminated.

The most important ethics lessons in Enron and Arthur Andersen were that financial cleverness is no substitute for an efficient corporate strategy. A business earns money in the new economy in the similar ways as in the old economy by providing goods or services that have real value. The arrogance of corporate executives who themselves to be the best and the brightest, "the most innovative," needs to avoid such acts and behave in an appropriate manner