I. Read Chapter 12, Case Study – The Enron Fraud, then answer the following questions:
1.What important internal controls were ignored when LJM1 was created?
2.How might Enron’s harsh Performance Review Committee have aided company executives in committing the fraud?
3.The fraud at Enron is one of many major financial statement frauds that have occurred in recent years (Qwest, Global Crossing, WorldCom, etc.). What are some factors that could explain why the falsifying of financial statements is occurring so frequently? List four factors.
4.Suppose you are a certified fraud examiner but enjoy investing in the stock market as an additional source of income. On the research of Enron’s stock, you notice that although its stock has a history of strong growth and a seemingly promising future, Enron’s financial reports are unclear and, frankly, confusing. In fact, you can’t even explain how Enron is making money. Could this lack of clarity in its financial reporting serve as a red flag in alerting you to the possibility of fraud at Enron? Why or why not?
5.How could the auditor, Arthur Andersen in this case, have performed Enron’s audits and not caught the fraud? Is it possible for a financial statement auditor to perform an audit in compliance with generally accepted auditing standards (GAAS) and not catch major financial statement fraud? How would GAAS auditing need to change to guarantee that all frauds are caught?
II. Based on your answers to the above 5 questions, prepare 15-20 pages slides for “The Enron Fraud” case, then present them online.
Note: A word or excel file should be submitted as your answer and analysis (40 points), and a PPT file should be submitted as your ” online presentation” (20 points)