Enron: An Extended Case Study

Jim Rothwell Assistant Professor of Accounting Hickingbotham School of Business Ouachita Baptist University

The Crooked E: Coincidence or Prophecy ?

JAMES NIELSEN/AFP

Questions ?

• • • • • • • What happened within the company?

What was the corporate environment and culture of the company?

Who were the major players and their roles?

What “red flags” were there for analysts, auditors, and others to observe?

What accounting and auditing issues arose within the company?

How did the Enron scandal impact the accounting profession?

What did we learn from Enron?

Activities

• • • • • • • • View the movie “The Smartest Guys in the Room.” View the movie “The Crooked E: The Unshredded Truth about Enron.” Read the book “The Smartest Guys in the Room.” Read the book “Anatomy of Greed.” Research the financial statements of Enron from 1995-2002 Create a timeline of the major events related to Enron from 1995-2002 Create a list of the major players and their roles in the Enron scandal and collapse.

Identify the “red flags” of fraud that were evident within the Enron organization, culture, structure, and environment.

Enron Portfolio

• • • • • • • Major events timeline List of major players and roles Financial statement analysis and summary “Red Flags” paper Impact on the accounting profession paper ▫ Role of Arthur Andersen “What Did We Learn?” paper (personal reflection) Enron Quiz Questions

Accounting and Auditing Issues and Concepts

(Cont.)

• Accounting ▫ Mark-to market ▫ SPEs (off-balance sheet financing) ▫ Impact on the profession ▫ Government intervention

Accounting and Auditing Issues and Concepts

(Cont.)

• Auditing ▫ Impact on the profession ▫ Collapse of Arthur Andersen ▫ Sarbanes- Oxley ▫ PCAOB ▫ Ethics   Accounting firm Client ▫ Legal Liability ▫ Social Responsibility ▫ Evidence and documentation

Accounting and Auditing Issues and Concepts

(Cont.)

• Auditing ▫ Social Responsibility ▫ Evidence and documentation ▫ Audit Planning  Understanding the client – corporate culture  Understanding the industry/market   Risk assessment Fraud risk factors ▫ Internal Control ▫ Reporting Issues

Current Status

• • Enron ▫ Legal issues and court cases ▫ Former executives ▫ Employees Arthur Andersen

Resources

• • • • • • “The Smartest Guys in the Room” – DVD (video) The Smartest Guys in the Room: The Amazing Rise and the Scandalous Fall of Enron– Book (McLean and Elkind) “The Crooked E: The Unshredded Truth about Enron” – DVD (video) Anatomy of Greed – Book (Cruver) SAS 99: Consideration of Fraud in a Financial Statement Audit Other articles, presentations, literature, etc.