Evaluation of Accounting in Enron, Xerox, Worldcom Scandals
Critically evaluate the role of the accountancy profession in recent corporate scandals such as Enron, Xerox and WorldCom
It is expected that the accountancy profession would play quite an important role in scandals such as Enron, Xerox, and Worldcom, as all they all deal with the financial accounts not showing a true and fair view the company. Hence it is the role of accountants to prepare and check the financial statements. Therefore I feel that in the essay it is worth analyzing who exactly in the accountancy profession was responsible for each action in scandals, and show how 'accountants move easily from watchdogs in their capacity as auditors to being the architects of clever deals and frauds as CFO's and CEO's.' (lies damn lies)
In the Statement of Auditing Standards 100, published on March 1995, we are told that 'the responsibility for the preparation of the financial statements is that of the directors of the entity'. Therefore the auditor is only responsible to act as a watchdog and make sure that the directors' of the company have prepared the statements in accordance to Auditing and Accounting Standards.
Authur Andersen LLP (Enron's auditors) were therefore responsible in providing shareholders with 'reasonable assurance' that the financial statements presented a true and fair view of the company's financial position. Consequently one could argue that because they failed to do this that they were entirely responsible, as far as the public is concerned, in Enron's scandal. The fact that thousands of pages of documents were shredded proves on itself that Andersen was guilty of fraud, as this is a violation of the law and Justice Department.
In response to these accusations Andersen stated that their only role in this scandal was to 'express an opinion on the financial statements prepared by the company,' (accountancy age) and therefore will hold themselves responsible for any errors in the auditing. In addition to this it has been 'publicly acknowledged that there was one error of judgment in the treatment of one partnership' (Accountancy Age). Though in another partnership matter, they have defended their case in saying that they were not provided with the necessary information by Enron. According to SAS 600 it was Andersen's role to qualify the financial statement, and thus disclaim it if the effect of this limitation of scope was pervasive enough to make the statements as misleading as they were.
However the situation was much more complex than...