Laya Isabelle O.

Sularta

1. The parties who are most responsible for the Enron debacle were:

Enron Executives (Kenneth Lay, Jeffrey Skilling, and Andrew Fastow) - They are responsible for
this fiasco since it was them who strategically plans the company's goals and objectives in a long-term
basis. These executives wanted Enron to be the "world's greatest company" and with that they had to
make something impossible, into possible. They allowed their employees to go beyond their powers just
for them to attain what they wanted.

Andersen's Auditors - The auditing team who handles the financial statements of Enron, already
discovered that there are humungous amounts of misstatements in the accounts still they chose not to
disclose it. They know that something is wrong with their clients accounting treatments and they know
that it must already be brought to attention but they did not do so, instead they collaborated with their
client in hiding their fraudulent transactions which further damaged not only their reputation but as well
as other people's lives.

Joseph Berardino - He was the chief executive of the firm before Enron's collapse. Even if he
claims that he doesn't have any idea on how Enron operates when he was appointed as an executive of
Andersen's, it's probable that he already has a clue about the current status of their clients. Instead of
acting on the problem, he chose not to look at the situation and pretend as if nothing is wrong.

2. The services that audit firms offer their clients are:

Financial consultation where owners and managers need the ability to review financial
statements and reports to determine if the business is meeting financial goals. The auditing firm
analyzes current and prior financial statements to determine not only if finances are in order, but also if
the proper reports are being generated. The threats in this service may be self-interest, when an auditor
has direct or indirect financial interest in their client's business or it can be a familiarity threat if the
auditor has a close or immediate family member who has a significant influence in the client's company.
Another threat could also be intimidation, when the member of the assurance team is threatened to be
dismissed from the engagement or to be sued if they did not follow what the assurance client demands.

Strategy and Operations, audit firms provide consulting services in any and all of these areas. A
management audit detects problem areas with managers or owners, especially in small businesses. A
manager or hands-on owner can become so ingrained in the daily operations that he loses sight of the
bigger picture. Likewise, he may be bogged down with details that blind him to obvious pitfalls that need
attention. In this service there can be a self-review threat if the auditor was a previous director or
official in the client's company where in he exercised significant influence in the strategy and operations
of the business. Another threat to independence would be familiarity threat if there has been a long
association between the assurance team and the assurance client.
 Risk management strategic planning consulting assists senior management in setting goals for
properly timed growth while continuing to produce high quality and outstanding performance. This
consulting service could be a threat to independence if the member of the auditing team has direct or
indirect financial interest in the company or if there's an undue dependence on total fees from the
assurance client.

3. Yes, I believe that Andersen's involvement in this case violated the professional auditing
standards, because they did not follow the fundamental principles that are needed in professional
auditing, namely integrity, objectivity, and professional behavior.

Integrity means that a professional accountant should be straightforward and honest in

performing professional services. Objectivity, is being fair and should allow bias or prejudice or conflict
of interest or influence of others override objectivity. Professional behavior where an auditor should act
in a manner consistent with good reputation of the profession and refrain from any conduct which
might bring discredit to the profession.

The external auditors 'helped' Enron's officials to manipulate certain transactions and only
disclosed vague and obtuse information that does not really reflect the company's current standing.
Since Enron has been their long-term client they were able to build a relationship with each other which
causes threats to the firm's independence when it comes to auditing, because of their familiarity with
each other they allowed their client to do fraudulent acts and even attesting that it is right to do so.
Moreover, the firm destroyed a significant amount of information, related to Enron's financial
statements, which made the investigators question them more. Even if they claim that the working
papers belong to the audit firm, but when it comes to information that are under litigation shall not be
restricted from the investigating committee of the said situation.

4. The key requirements regarding the preparation and retention of audit work papers are, first it
should state a clear audit objective, it should have the proper documentation (date/period ended), state
full extent of tests made to enable the reviewers to see how the procedures were made, full reference
to another working paper, lastly it should be objectively state the results of the test without bias. The
working papers should show that the audit was properly planned; carried out; there was an adequate
supervision; appropriate review was undertaken, and most importantly that the evidence sufficiently
and appropriately supports the opinion made.

The audit firm owns the working papers and the firm is prohibited from disclosing any
information contained therein without the client's consent. The only time that anyone has a legal right
to examine such files is when they are subpoenaed by a court as a legal evidence.

5. The recommendations that have been made are the following:

 Rationalizing work procedures in detecting fraudulent and misappropriation of financial
statements for the sake of stockholders, their employees, the company and the economy at
large.
Strengthening the implementation of the rules and regulations as to stock exchanges that
should be able to meet the requirement of the current situation in auditing process.
Self evaluation of companies, that is to say the core and basic idea of corporate governance that
is subject to public review.
Improving the effectiveness of Audit committee; establishing PCAOB (Public Company
Accounting Oversight Board) to oversee the rule-making process for the independent audit
function.
Raised membership and sole audit committee responsibility and authority in the composition of
audit regulation and the likes.

6. The concept of professionalism has something to do with one's competence, accountability and
integrity to practice such profession, in my own perspective I cannot say that there has been a
significant shift over the past years in the said concept since I have not experienced being in the field of
auditing yet, but one thing I know is that people do care about how they can perform their job in a
manner that will reflect the importance of their work in the society. Auditors play a big part in the
business world, that's why there is a very rigorous rules and regulations implemented to such profession
since it has a vital point in the decision making of their clients, as well as the investors and other
interested parties. Today, users of financial statements and the stakeholders of companies are now
more careful when it comes to the actions they will be taking for their business and they pay close
attention to what is really happening in the industries. With that in mind, auditing firms should not take
their business lightly, I am hoping that the story of Enron's downfall will serve as a lesson to every
person, whether involved in the business or not, that the core values of a person or a company should
never be based on greed or on self-interest alone, but it should be based for the common good of all
people.

7. Even if the SEC did not require public companies to have their quarterly financial statements
audited, auditors must still be responsible in auditing such statement because it will make their work
become more reliable since they can check it even before it reaches its yearend, there will be more
control over the subject matter which can lessen the risks of misstating the financial statements of the
company.