Introduction
Enron corporation is a company that provides products and services in the energy sector like
natural gas, and electricity while also providing communication to wholesale and retail
consumers (Hosseini & Dr. Mahesh, 2016). The company started expanding aggressively in the
1990s into several areas. However, the company's executives didn't manage this expansion
properly which resulted in a massive crisis that forced the company to go bankrupt.
Arthur Andersen is a company that provided auditing, tax, and consulting service (Hatcliffe,
2022). However, in 1989 the company split from its fast-growing consulting business without
compensation which forced them to look for another source of revenue (Hatcliffe, 2022). From
this point on they focused on lucrative clients even if they don't meet their professional
standards. One of these clients was Enron which in 2001 was under scrutiny for fraud which
resulted in the accusation and later conviction of Arthur Anderson by the Department of Justice
for allegedly destroying documents to cover up their role in the Enron Scandal (Hatcliffe, 2022).
Identify what you consider any conflicts of interest in the case of Enron and Arthur
Andersen.
The expansion by Enron required significant capital investments that needed to be raised quickly.
One option was to raise capital through debt financing however this would affect its credit rating.
Hence, the company chose to divert its debts and losses by creating special arrangements like
Special Purpose Entity (SPE) (Hosseini & Dr. Mahesh, 2016). This would allow the company to
raise capital while hiding its debts and losses from investors and regulators.
Andrew Fastow, former Chief Financial Officer, was found to have made $30 million from
managing these partnerships (Hosseini & Dr. Mahesh, 2016). Arthur Anderson was investigated
for conflict of interest since they act as a consultant and auditor to Enron. They earn a large sum
of money for consulting which jeopardizes their position as auditors. Anderson's Chief Auditor
for Enron, David Dun was found to be guilty of destroying thousands of documents that would
be used against Enron (Hosseini & Dr. Mahesh, 2016).
What could have been done to avoid the conflicts of interest you identified?
Enron corporation is a company that provides products and services in the energy sector like
natural gas, and electricity while also providing communication to wholesale and retail
consumers (Hosseini & Dr. Mahesh, 2016). The company started expanding aggressively in the
1990s into several areas. However, the company's executives didn't manage this expansion
properly which resulted in a massive crisis that forced the company to go bankrupt.
Arthur Andersen is a company that provided auditing, tax, and consulting service (Hatcliffe,
2022). However, in 1989 the company split from its fast-growing consulting business without
compensation which forced them to look for another source of revenue (Hatcliffe, 2022). From
this point on they focused on lucrative clients even if they don't meet their professional
standards. One of these clients was Enron which in 2001 was under scrutiny for fraud which
resulted in the accusation and later conviction of Arthur Anderson by the Department of Justice
for allegedly destroying documents to cover up their role in the Enron Scandal (Hatcliffe, 2022).
Identify what you consider any conflicts of interest in the case of Enron and Arthur
Andersen.
The expansion by Enron required significant capital investments that needed to be raised quickly.
One option was to raise capital through debt financing however this would affect its credit rating.
Hence, the company chose to divert its debts and losses by creating special arrangements like
Special Purpose Entity (SPE) (Hosseini & Dr. Mahesh, 2016). This would allow the company to
raise capital while hiding its debts and losses from investors and regulators.
Andrew Fastow, former Chief Financial Officer, was found to have made $30 million from
managing these partnerships (Hosseini & Dr. Mahesh, 2016). Arthur Anderson was investigated
for conflict of interest since they act as a consultant and auditor to Enron. They earn a large sum
of money for consulting which jeopardizes their position as auditors. Anderson's Chief Auditor
for Enron, David Dun was found to be guilty of destroying thousands of documents that would
be used against Enron (Hosseini & Dr. Mahesh, 2016).
What could have been done to avoid the conflicts of interest you identified?
