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Financial statement fraud discussion post

Read about the role of the independent auditing firm Arthur Andersen & Co. in the scandalous financial fraud perpetrated by ENRON corporation. Also, see the “Enron Corporation” case (Links to an external site.) for this question.

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1) The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe were most responsible for that crisis. Briefly justify each of your choices.

2) When reviewing the ACFE’s Code of Ethics (ATTACHED), what specific code(s) did Arthur Andersen violate?

3) Often fraud examiners must deal with independence issues when examining a company. How do we define independence by both the financial auditor and a fraud examiners?

4) Some people believe that the audit industry has fallen out of touch with the realities of business. They believe that accounting standards were developed for a manufacturing environment and are not fitted for our modern needs. As a result, they contend that financial statements have turned into a game in which all companies try to match earnings forecasts set by financial analysts. Are these statements true, or do you think that they are too cynical?

5) One of the most controversial topics to affect the accounting profession has been that of earnings management. Companies have been trying to manage their earnings to match analysts’ projections.

6) While the accounting literature doesn’t give accounting professionals a clear definition of earnings management, many people have been critical of companies for trying to manage earnings, saying that most managed financial statements are fraudulent. Analyze the pros and cons of earnings management and try to decide whether earnings management is the same as financial statement fraud.

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