What were the red flag's that auditors should of realized with the Enron scandal? ?

Hey guys, I need to identify red flags that auditors should of caught when the Enron scandal took place that will prevent future issues to happen again.

1 Answer

  • John
    Lv 6
    1 month ago

    The auditors (Arthur Anderson) did not miss any red flags at Enron.  Rather, they intentionally ignored them.  The cause went back a number of years.

    Years before the Enron scandal, outside auditors were completely independent of their clients.  The big accounting firms, however, discovered they could make much more money by providing consulting services to their auditing clients.  The AICPA watered down the rules regarding independence, in order for its primary members (international accounting firms) to profit from consulting.  If the audit division of Anderson challenged Enron on its fraudulent accounting records, Enron would fire Anderson.  If that happened, Anderson would lose the lucrative consulting work. 

    The big accounting firms (once the Big 12 but now the Big 4, aka the Final 4) lost so much public confidence that most no longer do consulting for their audit clients.

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