THE COLLAPSE OF ENRON & THE INTRODUCTION OF THE SARBANES OXLEY ACT

BY
TREVOR GARRETT
02/25/2011

Abstract
Enron Corporation was one of the largest energy trading, natural gas and Utilities Company in the world that was based in Huston, Texas. The downfall of Enron is one of the most infamous and shocking events in the financial world, and its reverberations were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading companies in the U.S and considered among top 10 admired corporations and most desired places to work at. Its revenues made up US $139 to $184 billion, assets equaled $62 to $82 billion, and the number of employees reached more than 30,000 people in 20 countries around the world. …show more content…

In December 2001, Enron filed for Chapter 11 bankruptcy protection a consequence of too much debt and risky major investments.
Arthur Andersen the auditor for Enron also contributed to its demise by failing to provide shareholders, employees and interested parties with 'reasonable assurance' that Enron’s financial statements presented a true and fair view of the company's financial position. The auditor also failed to report the lack of internal control in the numerous divisions of Enron including budgetary control. As the appointed auditor they should have investigated the most significant differences between budgeted and actual results as these areas could have contained potential misstatements. In doing so they should have also evaluated whether the budgets were realistic plans. A detailed discussion with management accountants about procedures would have given them a further insight into the activities of Enron including the possibility that current financial information could have been changed to conform to the budget or vice versa.
Enron's collapse has brought attention to deficiencies in several accounting and auditing areas. Among them are the conflict of interest between the two roles played by Arthur Andersen, as auditor but also as consultant to Enron; the lack of attention shown by members of the Enron board of directors to the off-books financial entities with which Enron did business with; and the lack of