The Enron Corporation

The Enron Corporation, an American energy company based on Houston, Texas was one of the fifth largest audit and accountancy partnerships in the world. Enron scandal was revealed in October 2001. Enron scandal was different than any others because of its largest bankruptcy in American history and biggest audit failure. Enron were able to perpetrate the fraud by unethical practices that required the company to use accounting restrictions to misrepresent earnings and alter the balance sheet to show favorable performance. Focusing on aggressive earnings targets and management bonus compensation based on those targets, excessive interest by management in maintaining stock price/earning trend through the use of aggressive accounting practice, and inability to generate sufficient cash flows from operation while reporting earnings and earnings growth.

Yes, there were certainly “holes” in the profession because people like David Duncan, former Enron audit engagement partner including numerous Enron officials faced criminal indictments for their roles in the Enron fraud, among them were Andrew Fatsow, jefferey skilling and Kenneth Lay. Enron hired numerous CPAs as well as accountants who had worked on developing accounting rules with the FASB who later on would search for new ways to save the company money, including capitalizing on loopholes found in GAAP, the accounting industry standards. In addition, after news SEC investigations of Enron were made public, Andersen later shred several tons of relevant for the cover-up. "The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron's financial statements, or its obligation to bring to the attention of Enron's Board (or the Audit and Compliance Committee) concerns about Enron's internal contracts over the related-party transactions". Therefore, FASB imposed stricter accounting and financial reporting guidelines