Don’t you think Andersen’s role in the WorldCom and Enron frauds differed?
To me, it seemed that Andersen’s role at Enron was like that of an enabler. Andersen explicitly approved of Enron’s abusive off-balance sheet use of the 3% SPE rule and mark-to-market accounting on those long-term commodity contracts. Yes, Andersen could have dug deeper to understand who controlled that 3% in the SPEs. Enron was also paying Anderson much higher audit fees than WorldCom which may have influenced Andersen’s objectivity on those accounting treatment decisions. At least Enron attempted to work within the principles of GAAP even though the 3% SPE control was fraudulent.
Andersen’s role at WorldCom was one a hapless auditor going through the same procedures year after year with no issues or exceptions. WorldCom demonstrated a blatant disregard of GAAP and internal controls by reclassifying fixed assets of companies acquired to goodwill to lower expenses, capitalizing line costs (WorldCom’s single biggest expense) instead of recording the expense in the appropriate period, and inflating the values of companies acquired. WorldCom flat out committed financial statement fraud and tried to hide it, hoping nobody would notice. Andersen’s WorldCom team failed to perform basic substantive audit procedures and instead chose to pursue cheaper alternative procedures to make the audit engagement less costly.
I view Andersen’s role at Enron and WorldCom quite different in nature. However, at the end of the day Andersen did not fulfill its obligation at both companies.
Let me know your thoughts.
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