Premium Essay

Enron Company

In: Business and Management

Submitted By fathirah
Words 3683
Pages 15
Current Issues in Auditing
Volume 8, Issue 1
2014
Pages I1–I10

American Accounting Association
DOI: 10.2308/ciia-50775

INSTRUCTIONAL RESOURCE

ABC Electronics: An Instructional Case
Illustrating Auditors’ Use of Preliminary
Analytical Procedures
Paul M. Clikeman and Jamie Diaz
SUMMARY: This instructional case demonstrates auditors’ use of analytical procedures during the planning/risk assessment phase of a financial statement audit. An Excel spreadsheet enables instructors to embed up to seven operating problems or potential accounting issues into a fictitious consumer electronics manufacturer’s current year financial statements. Questionnaires from students at two universities indicate that the case is effective at helping undergraduate auditing students understand (1) auditors’ use of analytical procedures during the planning stage of the audit, and (2) the types of accounting issues and operating problems that might be identified using analytical procedures.
Keywords: analytical procedures, audit planning.

INTRODUCTION
Professional audit standards require auditors to perform analytical procedures during the planning and final review stages of each financial statement audit (AICPA 2012, AU 329; PCAOB
2012, AS 12). This instructional case focuses on analytical procedures performed during audit planning. The purpose of performing analytical procedures early in the audit is to enhance the auditor’s understanding of the client’s business and identify accounting issues, operating problems, or unusual transactions that warrant investigation. Field research suggests that analytical procedures often are performed by lower-level staff auditors and consist of simple procedures such as year-to-year account balance comparisons and ratio analysis (Hirst and
Koonce 1996; Trompeter and Wright 2010).

Paul M. Clikeman is an Associate Professor

Similar Documents

Premium Essay

The Enron Company Collapse

...want to know what happened to Enron. Although this company's name was splashed over every news network and periodical paper in the United States, few people know the long and torrid story that lead to the collapse of an energy giant. Enron began in the eighties as an energy company selling natural gas. When energy markets were deregulated in the mid-nineties, Enron, like many energy companies, began to focus on selling energy from other sources rather than creating it. The corporation expanded exponentially, and its stock prices soared. Because the company was so wildly successful, they began to branch out into a variety of hot markets, such as the internet. By the beginning of the millennium, Enron was a well-diversified and seemingly indestructible conglomerate with no sign of trouble in sight. However, cracks were forming in Enron's foundation. To sustain their rapid rate of growth, the company had to borrow money. Having excess debts would make the stock look less valuable to potential investors, so the company kept its debts buried in 'partner' corporations that it began solely as a means to hide the truth about their company. Enron was looking better and better because of their illegal and unethical bookkeeping practices. They also began another illegal practice: offering secret information to large potential investors. Legally, companies must give their smaller investors the same inside information as their larger shareholders. Although Enron was beginning to show signs...

Words: 550 - Pages: 3

Premium Essay

Enron Company Case Study

...Journal of Business and Management Vol. 5, No. 10; October 2010 The Case Analysis of the Scandal of Enron Yuhao Li Huntsman School of Business, Utah State University, Logan city, U.S.A E-mail: wyl_2001_ren@126.com, carolee1989@gmail.com Abstract The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron undoubtedly is the biggest audit failure. It is ever the most famous company in the world, but it also is one of companies which fell down too fast. In this paper, it analysis the reason for this event in detail including the management, conflict of interest and accounting fraud. Meanwhile, it makes analysis the moral responsibility From Individuals’ Angle and Corporation’s Angle. Keywords: Enron scandal, Accounting fraud, Moral responsibility, Analysis 1. Review of Enron’s Rise and Fall Throughout the late 1990s, Enron was almost universally considered one of the country's most innovative companies -- a new-economy maverick that forsook musty, old industries with their cumbersome hard assets in favor of the freewheeling world of e-commerce. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses...

Words: 3062 - Pages: 13

Premium Essay

Enron Company Case Study

...Enron Company Ethical Issues Case Analysis Format I. Time Context After the scandal revealed on Enron Corporation on October 2001 up until in present time (2014) it is still discussed. II. Point of View Enron was founded in 1985, and as one of the world's leading electricity, natural gas, communications and pulp and paper companies before it bankrupted in late 2001. The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. Although Enron went bankrupt and disappeared ten years ago, the impacts it has made on the ethical standards never faded.  It took Enron 16 years to go from about ten billion dollar assets to more than sixty-five billion dollar assets, and took twenty-four days to go bankrupt. (McLean & Elkind, 2004) III. Statement of the Problem The said company projected itself as a highly profitable, growing company – an image which quickly turned out to be an elaborate mistrurth. Enron’s statements about profits were shown to be untrue, with a very big debts concealed so that they didn’t show up un the company’s accounts. Moreover, the company was seen to have been extraordinary active in political lobbying – with large numbers of legislators close to the company in one way or another. This fact had not been enough to save it, but raised...

Words: 377 - Pages: 2

Premium Essay

Why Was Enron Such an Admired Company Prior to 2000?

...Why was Enron such an Admired Company Prior to 2000? Enron was first founded on the year 1985. It is an acquisition between the Internorth and Houstan Natural Gas (HNG) that formed HNG/InterNorth and it was renamed to be Enron. However during the whole process of acquisition, the company incurred a large amount of cash outflow. Not only that, acquisition take place in the midst of deregulation and it cause the company to lost their exclusive right on pipelines. Deregulation means the natural gas at the spot prices will be lower than the bundled price offered by the pipelines. All these had made the company management have to come up with new strategy that could increase the profits and income of the company. Enron came up with the new strategy of investment which is the energy derivatives. Energy derivative is the long term fixed price contract with the customers with the objective to stabilize the natural gas market price. Meanwhile, in the same time, Enron manage the risk that need to be faced by them using financial derivatives. This technique could help Enron in reducing the risk of fluctuation exposure in spot price of the gas. Later on, in the November 1999, Enron developed a Web –based transaction system which called EnronOnline. This system is created by a young consultant, Jeffrey Skilling and he managed the Finance Corp of Enron. Under this system, users can carry out the trading process which is the buying, selling, trading of commodity products online globally...

Words: 613 - Pages: 3

Premium Essay

Acc 260 Week 2 the Enron and Worldcom Scandals Material a+Grade

...ACC 260 Week 2 The Enron and WorldCom Scandals Material A+Grade Get Tutorial by Clicking on the link below or Copy Paste Link in Your Browser https://hwguiders.com/downloads/acc-260-week-2-the-enron-and-worldcom-scandals/ For More Courses and Exams use this form ( http://hwguiders.com/contact-us/ ) Feel Free to Search your Class through Our Product Categories or From Our Search Bar (http://hwguiders.com/ ) Assignment: The Enron and WorldCom Scandals • Resource: Business & Professional Ethics • Due Date: Day 7 [Individual forum] • Review the accounts of the Enron and WorldCom scandals in Ch. 2 of the text: o Enron’s Questionable Transactions on pp. 96-107 o WorldCom: The Final Catalyst on pp. 114-118 • Answer the following questions using complete sentences: o Enron: 1, 3, 5, 6, and 9 on pp. 106-107 o WorldCom: 1, 3, 4, and 5 on p. 118 • Post your answers as an attachment. Clearly label the case and question number for each of your responses. Enron questions 1, 3, 5, 6, and 9 1. Which segment of its operations got Enron into difficulties? The first thing that got them into trouble was the fact that Kopper was appointed to Fastow and he was an employee of Enron. I do not believe that he had the best interest involved. Another thing was that over 11 million was suppose to be invested and it never was. I believe that this was the start of the problems! Another thing was the fact that Enron was incorrectly booking revenue for services that was...

Words: 7275 - Pages: 30

Premium Essay

Enron Corporation Term Paper

...Enron Corporation: THE RISE AND FALL; ACCOUNTING SCANDAL Submitted To: Professor Bill Bristol Submitted By: Kenneth Rhodes, Jr. Metropolitan College of New York (MCNY) TABLE OF CONTENTS I. ABSTRACT...............................................................................................................................2 II. purpose and service....................................................................................................3 III. HistorY............................................................................................................................3-5 IV. The Downfall..............................................................................................................5-6 V. Accounting Scandal................................................................................................6-7 VI. Accounting Practices...........................................................................................7-8 VII. Files’ for Bankruptcy.............................................................................................9 VIII. Auditing.....................................................................................................................9-10 IX. Conclusion: THE AFTERMATH..........................................................................10-11 XI. BIBLIOGRAPHY................................................................................................................12 I. ABSTRACT ...

Words: 2887 - Pages: 12

Premium Essay

Busniess

...Parth Vyas Econ- 312 Enron bankruptcy Enron Corporation was an American energy company based in Houston, Texas, United States. His company was formed in 1986 through the merger of two natural gas pipeline firms, Houston Natural Gas. Enron started out as a natural gas company put together by Kenneth Lay. Enron's natural gas pipeline brought the company much success. Supplying natural gas was a lucrative business.  Enron senior management falsified accounting records to make it look like they made a lot more money than they actually made. Stock prices don't continue to rise unless Net Income is increasing every quarter and every year. Enron did a fraud in stocks.  Enron established to shield itself from mark-to-market losses in its growing equity investment business. Enron and all publically traded companies are required to report on their finances to the public and to the Securities and Exchange Commission who regulates financial reporting over publically traded companies. The problem for Enron was that after some successes the traders began to have some financial failures and Enron was no longer really making a profit. The market traders, who were effectively just high-stakes gamblers, were no source of profits but instead a major source of loss themselves. People formerly involved with the company, such as creditors, auditors, the SEC and accounting regulators, it’s a nightmare for them. Enron essentially failed because the executives did not want to admit defeat. They had...

Words: 1006 - Pages: 5

Premium Essay

Enron Scam

...ETHICAL FAILURE: Enron Corporation Submitted by: Ishani Rawat 61 Niharika Agarwal 68 Poonam Singh 72 Ruchika Singh 77 Background Once the seventh largest company in America, Enron was formed in 1985 when InterNorth acquired Houston Natural Gas. The company branched into many non-energy-related fields over the next several years, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Although their core business remained in the transmission and distribution of power, their phenomenal growth was occurring through their other interests. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. Then came the investigations into their complex network of off-shore partnerships and accounting practices. What Happened? On April 17, 2001, Enron announced a 281% in revenues and a 20% increase in net income. Its stock was trading near $60. Things began to fall apart in October, however, when Enron reported an adjustment in earnings of over $1 billion in its SEC filings, resulting in a $618 million loss for the third quarter...

Words: 1461 - Pages: 6

Premium Essay

Enron

...Professor Young March 5, 2011 Enron was an old line energy company, owning electric power production facilities and natural gas pipelines. It engaged in several acquisitions during the late 1980s and the 1990s that dramatically increased its size. Its acquisitions included power companies in the U.S. and abroad, as well as investments in various energy and technology companies. In the 1990s, Enron reorganized itself as an energy trading company, whose primary form of business was to trade in various energy vehicles, including contracts to provide electric power in the future at pre-determined prices and similar contracts to deliver natural gas, water rights, wind power systems, broad band transmission systems, insurance, and other products. 1. Describe how Enron could have been structured differently to avoid such action. Enron, like most public companies was required by law to describe its party transaction to shareholders and the members of the investing public in several different disclosure documents. Overall, Enron failed to disclose facts that were important for understanding the substance of the transaction. Although they did disclose that there were large transactions that the CFA had interest. Enron did not give the CFO’s actual or expected benefits from these transactions or provide complete financial statements. The organizational structure could have been different by not changing the original structure. When Enron decided to change its structure by...

Words: 1126 - Pages: 5

Premium Essay

Enron Case Analysis-Assignment

...Enron Corporation (former NYSE ticker symbol ENE) was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,000 staff and was one of the world's major electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion during 2000.[1] Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, it was revealed that its reported financial condition was sustained substantially by an institutionalized, systematic, and creatively planned accounting fraud, known since as the Enron scandal. Enron has since become a well-known example of willful corporate fraud and corruption. The scandal also brought into question the accounting practices and activities of many corporations in the United States and was a factor in the creation of the Sarbanes–Oxley Act of 2002. The scandal also affected the greater business world by causing the dissolution of the Arthur Andersen accounting company.[2] Enron filed for bankruptcy protection in the Southern District of New York during late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It ended its bankruptcy during November 2004, pursuant to a court-approved plan of reorganization, after one of the most complex bankruptcy cases in U.S. history. A new board of directors changed the name of Enron to Enron Creditors Recovery Corp., and emphasized...

Words: 2204 - Pages: 9

Premium Essay

Business Research Ethics

...going to looking at the Enron Scandal to see how this company’s unethical behavior brought it to an end, to see who were the injured parties; to see how this company’s unethical behavior affected the company and society, and to see if the unethical behavior could have been avoided or resolved? According to the New York Times (2002), in early 2000, Enron, the natural gas pipeline company turned online phenomenon, held a daylong conference in Huston for Wall Street analysts and investors. The audience, packed with financial experts on the natural gas and power industries, was wowed by all the talk of Enron’s online capabilities, especially its rapidly growing business of electronically matching buyers and sellers of numerous commodities like electricity and even network bandwidth. To keep its mystique alive and its stock price growing, it set up partnerships where it could bury its losses, or generate imaginary revenues. Here's one of the more audacious examples, pieced together by The Wall Street Journal: Enron invested a bunch of money in a joint venture with Blockbuster to rent out movies online. The deal flopped eight months later. But in the meantime Enron had secretly set up a partnership with a Canadian bank. The bank essentially lent Enron $115 million in exchange for Enron's profits from the movie venture over its first 10 years. The Blockbuster deal never made a penny, but Enron counted the Canadian loan as a nice, fat profit (Enron-For-Dummies New York Times...

Words: 801 - Pages: 4

Premium Essay

The Meteoric Rise and Fall of Enron

...Heidrick Dr. Dan Deines ACCTG 641 15 October 2014 The Meteoric Rise and Fall of Enron Enron was created in 1985 after a merger between Houston Natural Gas and Internorth. By 2002 it was gone forever. Its stock price rose to $90/share in August of 2000 before bottoming out at $0.40/share when they filed for bankruptcy on Dec. 2nd 2001. It only took 16 years for one of the largest Fortune 500 companies to completely dissolve, taking employee jobs, pensions, Arthur Andersen, and the American public’s faith with it. Enron and its young McKinsey consultant created the energy derivative and used it to form the new natural gas division that dominated the market. However, the use of mark-to-market accounting and the creation of Special Purpose Entities (SPEs) led to overstated profits and inaccurate balance sheets. By the fall of 2001 nobody could find out how Enron was making its money. A disclosure on the October financial statements for a $1.2 billon dollar reversal caught the Security and Exchange Commission’s (SEC) attention. They launched an investigation and in less than two months Enron filed for bankruptcy protection. A large part of the scandal also focused around Arthur Andersen, at the time of the of the Big Five accounting firms, because of its qualified auditing opinions of Enron. It ultimately ceased to exist because of its involvement with the Enron fraud. The Enron scandal showed the public that changes in accounting and auditing standards and practices...

Words: 2607 - Pages: 11

Premium Essay

Enron

...Enron Corporation Describe how Enron could have been structured differently to avoid such activities. Enron had a code of ethics policy in place but failed to implement it correctly (Bagley, C.E. & Savage, D.W., 2010). An enforced code of ethics policy, which includes required annual ethics training, is crucial in setting standards for employees in regards to their ethical behavior. It reminds all employees that they need to think about how they conduct themselves on the job. Here at NASA, we have a code of ethics policy and annual ethics training. NASA’s ethics training is a required course that all employees must take. Training informs all NASA employees of what is and is not acceptable behavior. Along with the enforcement of a code of ethics policy and training, Enron needed to be structured so that people could safely come forth if they witnessed any illegal or unethical actions. Of course, the Sarbanes-Oxley Act, which makes it easier for employees to come forth, did not pass until after the Enron scandal. Another way that Enron could have been structured differently was to have a better way to scrutinize the activities that went on at Enron. That is, structure the company so that daily activities could be closely monitored. A separate group could have been created to do some internal monitoring of the activities at Enron. The things I mentioned would have been helpful in developing a better culture at Enron and could have helped limit such activities. However...

Words: 1238 - Pages: 5

Premium Essay

Enron Scandal

...ENRON SCANDAL Enron was formed in 1985 from merger of two companies; Houston Gas and InterNorth Inc. by Kenneth Lay. It grew to be among the highly innovative companies throughout 1990s. Its unique business strategy made it known. Initially, the company’s objective was to sell electricity and gas but by 1990s it had ventured into other businesses such as pulp and paper companies and communications . Its success was indicated by the rise in annual revenues; between 1995 and 2000 Enron recorded a revenue rise of $91 billion dollars. However in 2001 as notes accounting fraud was revealed in its financial reports. It was established that the company had indeed experienced a loss of more that $500 million dollars (Li, 2010) for the previous five years; contrary to its audit reports. The company fell bankrupt later in 2001. This essay examines the scandal, its effects and critically gives an ethical analysis of the situation. Enron scandal is the worst to have ever happened in the US business industry. Enron’s bankruptcy was a result of accounting fraud which was substantially institutionalized and creatively crafted within the management. The management focused on converting all the strategies into success to maintain their heavy compensations-through accounting manipulation; a greed financial officer with underground agreements to enrich himself; a collaborative law and auditing firms in Elkins and Arthur Andersen respectively; corrupt investment bankers- they structured...

Words: 882 - Pages: 4

Premium Essay

Enron

...ENRON: The Idiocy and the Irony Introduction Red flags were blinding as Enron learned about possible corruption with Enron Oil Trading in Valhalla, New York. After the merger between HNG and InterNorth, the Valhalla office, originally established by InterNorth seemed all but forgotten until quarterly and annual reports were due. Supervisors Tom Harding and Steve Sulentic were rarely on-site, preferring the comfort of offices in Houston. Louis Borget who established and operated the trading business was an autocratic manager, receiving excessive incentive payment for profitable performance. Between 1984 - 1986, Valhalla continued to report profits in the emerging oil trading industry. A call to Enron in Houston by Apple Bank would shatter the false sense of security regarding Valhalla. An ensuing investigation by Arthur Andersen, an accounting firm employed by Enron, failed to produce concrete evidence of misappropriation within Valhalla. Questionable practices were identified, but Enron failed to react appropriately to this information. CEO Lay was able to persuade key executives within Enron and the board of directors to keep running Valhalla offices, with minor changes in personnel. Mick Seidl, unhappy with Lay’s influence over the board, called Mike Muckelroy to investigate Valhalla. Muckelroy’s investigation would become the tipping point regarding Valhalla. With a secret set of books discovered, fraudulent trading entities identified and $1 billion...

Words: 5014 - Pages: 21