Forensic accountant role in enron scandal

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Forensic accountant role in enron scandal

Russell Ten years ago, Arthur Andersen was forced to surrender its licences in the United States after the Enron scandal, precipitating its global collapse. Russell looks back on the past decade of reactions, reforms and soul-searching in the accounting profession.

More significantly for the accounting profession, this May marks a decade since the Enron indictment in the United States, and the beginning of the end for the well-respected firm of Arthur Andersen, one of what was then the Big Five accounting firms.

The firm was convicted of obstructing justice by destroying thousands of documents related to its work for Enron. While the ruling was overturned in on technical grounds, it came too late to resuscitate the brand.

For the profession, the scandal drew wide scrutiny on the supposed compromised position of large firms that audit the books of clients to whom they also provide consultancy services.

Others, like Cheung, left auditing altogether. Staff in Hong Kong were caught unawares that a scandal half a world away would reverberate so loudly close to home.

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Why did it affect us? Even accountants 13, kilometres away in Texas were scratching their heads. Guidry, now president at PKF Texas and chairman of PKF North America, says he was shocked at how vast the repercussions were, considering Andersen had weathered problems with audit clients before Enron.

More significantly, Pacter sees the saga as an argument for principles-based standards such as IFRS rather than rules-based standards such as U. Generally Accepted Accounting Principles. Under GAAP, a series of rules dictates whether a special purpose entity is a separate entity from the sponsor for financial reporting purposes.

A common accounting technique done by companies is selling their special purpose entities an asset, such as a receivable balance, which takes it off their own balance sheets. The off-balance-sheet subsidiaries issue is a perfect case in point of rules-based versus principles-based accounting, says Pacter.

GAAP had very detailed bright-line rules on when such special purpose entities had to be consolidated [i. Enron managed to structure around the rules, though in a number of cases they even broke the rules.

If you control the special purpose entity, you consolidate it. In Hong Kong, the Professional Accountants Ordinance was reformed to include non-accountants to the Hong Kong Institute of CPAs council and disciplinary and investigation panels, increasing third-party oversight of the profession.

The effect, however, appeared to be short-lived. Europe fared no better:The Enron scandal was quickly followed by revelations of dozens of other U.S. accounting scandals in listed companies – for instance, WorldCom, Duke Energy and Halliburton – leading to thousands of forced restatements of the financial statements of U.S.

Forensic accountant role in enron scandal

public companies working under U.S. GAAP. A financial audit is conducted to provide an opinion whether "financial statements" (the information being verified) are stated in accordance with specified schwenkreis.comly, the criteria are international accounting standards, although auditors may conduct audits of financial statements prepared using the cash basis or some other basis of accounting appropriate for the organisation.

By George W. Russell.

Forensic accountant role in enron scandal

Ten years ago, Arthur Andersen was forced to surrender its licences in the United States after the Enron scandal, precipitating its global collapse. Enron. WorldCom. Qwest. Adelphia. We all saw up close the devastating effect that individualgreed can have on the collectivegood—from personal retirement accounts to global markets.

I was the Inspector in Charge of the Enron Task Force for more than a year. We worked closely with forensic accountants from Deloitte & Touche. AHISTORY"OF"FORENSIC"ACCOUNTING"" "" 2" Abstract Forensic Accounting is a relatively new profession that uses ideas and techniques started centuries ago.

The profession has been molded and shaped by many aspects of the shifting world including the economy, society, and legislation. The evolution of Forensic Accounting is .

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ANDERSEN, AUDITING AND ATONEMENT — The accounting profession 10 years after Enron – GAA Accounting