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Anderson Case Study

1074 words - 5 pages

Andersen: An Obstruction of Justice?

1. Look up the term corrupt in the dictionary. What is the definition? Was corrupt appropriately applied to the actions of Andersen?

The dictionary defines corrupt as, “having or showing a willingness to act dishonestly in return for money or personal gain”. In the case of Andersen and Enron, the question of corruptness relates to the destruction of documents. While at first appearance it seems like an easy question to answer, many details come into play. The destruction of documents is a normal audit procedure used to protect the firm and company (client). Auditors are instructed to destroy any documents that are not needed. In the case of ...view middle of the document...

Also, were these documents significant to showing misleading financials? And lastly did Andersen conduct a fair and honest audit? These are very difficult questions to answer. If we are going by the letter of the law (at the time), I believe that not enough evidence is available to prove the Andersen broke any laws. There are many “red flags” surrounding the case that show something was not right. Andersen was not acting independent, it provided consultation and auditing for Enron, but this was not defined as illegal at the time. Andersen also was following the law in the destruction of documents. It is legal for documents to be destroyed that are not needed for the audit. This action is to protect the auditor and client, and that is exactly why Andersen took these measures. Lastly, Enron’s financial statements were accurately stated. The “special entities” not included in the statements were not required to be by GAAS principles (again at the time). In my opinion Andersen was acting within confides of the law; maybe they had found some “loopholes” but were not breaking any stated law. Sarbanes –Oxley was later enacted and passed to ensure that these practices, that were once legal, would now become illegal.

3. Should the SEC and the Department of Justice have tried Andersen as a firm or should they have targeted specific individuals who had engaged in acts the two bodies believed to be unlawful?

The SEC and Department of Justice targeted Andersen as a whole, and did not specifically targeted individuals in the case of Enron. I believe that this was the right decision. Based on the facts of the case, no one individual or few individuals did anything outside of their job description. For example the company policy was to destroy papers not needed in an audit, the individually who destroyed them did not hide this from anyone or secretly destroy these papers. The question of corruptness in this case was not a question of individuals but of company wide policies. Should the company have been acting independently? Again, it was no individual who was doing consulting under the table; it was company wide and not a secret. Because Andersen’s employees were acting within the company’s ideas of fair and legal...

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