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1.) Who Were The Perpetrators in The Enron Scandal/Individuals Involved?

Kenneth Lay, Jeffrey Skilling, and Andrew Fastow led Enron and implemented accounting practices that hid losses and misrepresented the company's financial health. Arthur Andersen, Enron's accounting firm, also contributed by neglecting auditing responsibilities and misstating financial statements to support positive earnings reports. The government should have implemented stronger regulations, accountability, transparency requirements, whistleblower protections, and penalties for fraud to prevent such scandals in the future. As an internal auditor, they should have taken a more skeptical approach given Enron's use of mark-to-market accounting and looked more closely at potential issues with this method representing estimated profits as actual profits.

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296 views3 pages

1.) Who Were The Perpetrators in The Enron Scandal/Individuals Involved?

Kenneth Lay, Jeffrey Skilling, and Andrew Fastow led Enron and implemented accounting practices that hid losses and misrepresented the company's financial health. Arthur Andersen, Enron's accounting firm, also contributed by neglecting auditing responsibilities and misstating financial statements to support positive earnings reports. The government should have implemented stronger regulations, accountability, transparency requirements, whistleblower protections, and penalties for fraud to prevent such scandals in the future. As an internal auditor, they should have taken a more skeptical approach given Enron's use of mark-to-market accounting and looked more closely at potential issues with this method representing estimated profits as actual profits.

Uploaded by

Claire Joy Cadorna
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ENRON SCANDAL

1.) Who were the perpetrators in the Enron Scandal/Individuals Involved?

Several people are responsible for the Enron Scandals. There are many
causes of the Enron collapse. The first one is from the internal management,
which leads by Kenneth Lay, who had been the chief executive
officer (CEO) of Houston Natural Gas, became Enron's CEO and
chairman. Also, Jeffrey Skilling, who was appointed by Lay and
implemented the mark-to-market (MTM) accounting method. The mark-to-
market practise led to schemes that were designed to hide the losses and
make the company appear more profitable than it really was. They
tolerated it along with Andrew Fastow, who was promoted to chief
financial officer in 1998, developed a deliberate plan to show that the
company was in sound financial shape even if many of its subsidiaries
were losing money.

In addition to this, a major player in the Enron scandal was Enron's


accounting firm Arthur Andersen LLP and partner David B. Duncan, who
oversaw Enron's accounts. 

2.) What are the measures that the Government should have done to prevent
this from happening again?

I will focus here regarding the participation of Arthur Andersen, which was
the auditor and consultant of Enron Corporation. From what I've read, Arthur
Andersen misstated financial statements and neglected its auditing
responsibilities to augment positive earnings reports for the corporations it
represented, such as Enron Corporation. We know that they were one of the
most prominent accounting firms in the United States. Auditing successful
companies on the rise meant greater financial success for Andersen itself. Thus,
this cycle of greed led to more profit and more greed. Andersen lost sight of its
responsibility to the investing public and was willing to deceive investors for its
financial gain. Just like the implementation of the Sarbanes-Oxley Act, the
Government should have adequate governmental regulations been in place to
uphold the quality auditing of corporations. The Government should implement
and increase accountability and disclosure requirements of corporations,
especially corporate executives, and corporations’ public accountants and
auditors. They should add demands for corporate transparency in reporting to
shareholders and descriptions of financial transactions. It is very crucial also to
strengthen whistle-blower protections and compliance monitoring. Besides, they
should increase penalties for corporate and executive frauds.

3.) What would you have done to detect the Enron case from happening even
before the whistle-blower?

As an internal auditor, we must have a professional skepticism in our


responsibility. It is crucial to our role. We must overcome such some natural
tendencies such as overreliance on client representations—and biases and
approach the audit with a skeptical attitude and questioning mind. We must not
base our jobs from the past relationship we’ve had from our clients. We must not
assume that all the clients are transparent just because we’ve had a previous
relationship with them. In the case of Enron case, me, as an auditor, should have
a questioning mind even at first since they were using a mark-to-market (MTM)
accounting method by which they can adjust the value of an asset on the balance
sheet from its historical cost up to the fair market value and capture that different
as a gain or revenue. At this moment, by using this approach, it could lead to an
issue even if this approach was approached by SEC. We should have an eagle
eye regarding this matter and should look carefully on it as it
essentially permitted the organization to log estimated profits as actual
profits.

References:
https://fisherpub.sjfc.edu/cgi/viewcontent.cgi?article=1018&context=ur

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