1. Arthur Andersen, first and foremost, contributed to the Enron disaster by
neglecting their responsibility to Enron’s stockholders and the general public in
conducting their audit of Enron. Enron wanted to record shares issued as an
increase in shareholders equity when they were issued for something other than
cash. While Generally Accepted Accounting Principles (GAAP) prohibits this type
of recorded transaction, however Arthur Andersen failed to recognize this fact in
their audit. Arthur Andersen had taken over Enron’s internal audit function as
well, however they failed to advise Enron’s Audit Committee of the flaws and
weaknesses found in their policies and internal controls. These weaknesses
were so great that they put Enron’s stockholders interests at risk. Arthur
Anderson also failed to communicate the fact that Andrew Fastow, Enron’s CEO,
and Fastow’s collaborators, were tangled up in many significant conflict of
interest situations in which they did not have sufficient resources, if any at all, to
manage the conflicts that arose.
Arthur Andersen also contributed to the Enron disaster by allegedly either
not finding, or not acting upon, evidence that related to Enron’s side deals that
existed with banks and possible specious valuations of shares, or share rights,
transferred to Special Purpose Entities (SPEs).
The existing culture of focusing more heavily on Arthur Anderson’s bottom
line than their concern for the quality of audits, and serving the general public
also contributed to the tragedy of Enron. Such a concern towards to bottom line
