Enron Scandal

Q.1

Crisis of confidence happens after the Enron scandal occurred. I think several parties should responsible for this crisis, that include independent auditor, clientЎ¦s key executive officers, clientЎ¦s internal auditors, SEC, FASB, bank and financial analysts.

The most important statutory duty of the independent auditor is to ensure the financial reports are intended to give a Ў§true and fair viewЎЁ. If the financial statement contains fraud and irregularities, independent auditor should discover and report it to the proper authority. For the Enron case, Anderson breaches the duty to warn, as they know there is fraud and major error in the financial statements, which is the overstatement of the profits. As if they have warn the clients, even Enron had done nothing, Anderson should report to the proper authority, however, they did not report this. Even worse, Anderson issues an unqualified report. Besides, Anderson was unknown one- half of the SPE which showed Anderson was lack of competence.

Auditor independence helps to ensure quality audits and contributes to financial statement usersЎ¦ reliance on the financial reporting process, however, if the investors find out that the financial statement contain major problems, therefore, the creditability of independence auditor would be challenged. Thus, investors tend to unbelieve professionalism.

For the key executives of the client, they should familiar with the whole company situation. If there are any material problems they should point out immediately. The intention of the EnronЎ¦s executives which make the financial statement totally failed. This failure triggers the disappointment of the public of professionalism. Moreover, if the client have no intention to deceive the public, internal auditor also need to responsible for the misstatement. Failure of the client executivesЎ¦ duties would reduce the confidence of the accounting profession.

SEC and FASB should responsible for the crisis of the confidence. It is because the stated rule which required all companies followed, has a big problem. The 3 percent rule is completely unreasonable. Only 3% capital of the SPE is from the owner and the other 97% can lend form outsiders. Moreover, the rule permits Enron create a large numbers of SPE in order to manipulate the unrealized gain in the consolidated financial statement. Indeed, the financial statement is ridiculous, as most of the transactions are created by company itself, I think SEC and PACB should responsible for this major problem.

For the lender, I think every lender should aware of the borrowerЎ¦s financial situation. They must assess the whole company situation