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TESTBANK FOR Solution Manual with All cases for
Contemporary Auditing University Of Southern Indiano 7th
Edition Michael C. Knap
Case 1-8 with all section
CASE 1.1 to Case 1.11
CASE 2.1 to Case 2.8
CASE 3.1 to Case 3.6
CASE 4.1 to Case 4.9
CASE 5.1 to Case 5.6
CASE 6.1 to Case 6.7
CASE 7.1 to Case 7.9
CASE 8.1 to Case 8.11
CASE 1.1
ENRON CORPORATION
,2 Case 1.2 Just for Feet, Inc.
Synopsis
Arthur Edward Andersen built his firm, Arthur Andersen &
Company, into one of the largest and most respected accounting
firms in the world through his reputation for honesty and
integrity. ―Think straight, talk straight‖ was his motto and he
insisted that his clients adopt that same attitude when preparing
and issuing their periodic financial statements. Arthur
Andersen‘s auditing philosophy was not rule-based, that is, he
did not stress the importance of clients complying with specific
accounting rules because in the early days of the U.S. accounting
profession there were few formal rules and guidelines for
accountants and auditors to follow. Instead, Andersen invoked
a substance-over-form approach to auditing and accounting
issues. He passionately believed that the primary role of the
auditor was to ensure that clients reported fully and honestly to
the public, regardless of the consequences for those clients.
Ironically, Arthur Andersen & Co.‘s dramatic fall from
prominence resulted from its association with a client known for
aggressive and innovative uses of ―accounting gimmicks‖ to
window dress its financial statements. Enron Corporation,
Andersen‘s second largest client, was involved in large, complex
transactions with hundreds of special purpose entities (SPEs)
that it used to obscure its true financial condition and operating
results. Among other uses, these SPEs allowed Enron to
download underperforming assets from its balance sheet and to
conceal large operating losses. During 2001, a series of
circumstances, including a sharp decline in the price of Enron‘s
, Case 1.2 Just for Feet, Inc. 3
stock, forced the company to assume control and ownership of
many of its troubled SPEs. As a result, Enron was forced to report
a large loss in October 2001, restate its earnings for the previous
five years, and, ultimately, file for bankruptcy in December 2001.
During the early months of 2002, Andersen became the
focal point of attention among law enforcement authorities
searching for the parties responsible for Enron‘s sudden
collapse. The accusations directed at Andersen centered on
three key issues. The first issue had to do with the scope of
professional services that Andersen provided to Enron. Critics
charged that the enormous consulting fees Enron paid Andersen
impaired the audit firm‘s independence. The second issue
stemmed from Andersen‘s alleged role in Enron‘s aggressive
accounting and financial reporting treatments for its SPE-related
transactions. Finally, the most embarrassing issue was the
massive effort of Andersen‘s Houston office to shred Enron audit
documents, which eventually led to the demise of the firm.
1
Enron Corporation--Key Facts
1. Throughout Arthur E. Andersen‘s life, ―Think Straight, talk
straight‖ served as a guiding principle for himself and Arthur
Andersen & Co., the accounting firm that he founded.
2. Arthur Andersen‘s reputation for honesty and integrity
resulted in Arthur Andersen & Co. gaining stature in the
, 4 Case 1.2 Just for Feet, Inc.
business community and growing into one of the nation‘s
leading accounting firms by the time of his death in 1947.
3. Leonard Spacek succeeded Arthur Andersen as managing
partner of Arthur Andersen & Co. in
1947 and continued Andersen‘s legacy of lobbying for more
rigorous accounting, auditing, and ethical standards for the
public accounting profession.
4. When Spacek retired in 1973, Arthur Andersen & Co. was
one of the largest and, arguably, the most prominent accounting
firm worldwide
5. The predecessor of Enron Corporation was an Omaha-
based natural gas company created in 1930; steady growth in
profits and sales and numerous acquisitions allowed Enron to
become the largest natural gas company in the United States by
the mid-1980s.
6. During the 1990s, Kenneth Lay, Enron‘s CEO, and his top
subordinate, Jeffrey Skilling, transformed the company from a
conventional natural gas supplier into an energy trading
company.
7. Lay and Skilling placed a heavy emphasis on ―strong
earnings performance‖ and on increasing Enron‘s stature in the
business world.
TESTBANK FOR Solution Manual with All cases for
Contemporary Auditing University Of Southern Indiano 7th
Edition Michael C. Knap
Case 1-8 with all section
CASE 1.1 to Case 1.11
CASE 2.1 to Case 2.8
CASE 3.1 to Case 3.6
CASE 4.1 to Case 4.9
CASE 5.1 to Case 5.6
CASE 6.1 to Case 6.7
CASE 7.1 to Case 7.9
CASE 8.1 to Case 8.11
CASE 1.1
ENRON CORPORATION
,2 Case 1.2 Just for Feet, Inc.
Synopsis
Arthur Edward Andersen built his firm, Arthur Andersen &
Company, into one of the largest and most respected accounting
firms in the world through his reputation for honesty and
integrity. ―Think straight, talk straight‖ was his motto and he
insisted that his clients adopt that same attitude when preparing
and issuing their periodic financial statements. Arthur
Andersen‘s auditing philosophy was not rule-based, that is, he
did not stress the importance of clients complying with specific
accounting rules because in the early days of the U.S. accounting
profession there were few formal rules and guidelines for
accountants and auditors to follow. Instead, Andersen invoked
a substance-over-form approach to auditing and accounting
issues. He passionately believed that the primary role of the
auditor was to ensure that clients reported fully and honestly to
the public, regardless of the consequences for those clients.
Ironically, Arthur Andersen & Co.‘s dramatic fall from
prominence resulted from its association with a client known for
aggressive and innovative uses of ―accounting gimmicks‖ to
window dress its financial statements. Enron Corporation,
Andersen‘s second largest client, was involved in large, complex
transactions with hundreds of special purpose entities (SPEs)
that it used to obscure its true financial condition and operating
results. Among other uses, these SPEs allowed Enron to
download underperforming assets from its balance sheet and to
conceal large operating losses. During 2001, a series of
circumstances, including a sharp decline in the price of Enron‘s
, Case 1.2 Just for Feet, Inc. 3
stock, forced the company to assume control and ownership of
many of its troubled SPEs. As a result, Enron was forced to report
a large loss in October 2001, restate its earnings for the previous
five years, and, ultimately, file for bankruptcy in December 2001.
During the early months of 2002, Andersen became the
focal point of attention among law enforcement authorities
searching for the parties responsible for Enron‘s sudden
collapse. The accusations directed at Andersen centered on
three key issues. The first issue had to do with the scope of
professional services that Andersen provided to Enron. Critics
charged that the enormous consulting fees Enron paid Andersen
impaired the audit firm‘s independence. The second issue
stemmed from Andersen‘s alleged role in Enron‘s aggressive
accounting and financial reporting treatments for its SPE-related
transactions. Finally, the most embarrassing issue was the
massive effort of Andersen‘s Houston office to shred Enron audit
documents, which eventually led to the demise of the firm.
1
Enron Corporation--Key Facts
1. Throughout Arthur E. Andersen‘s life, ―Think Straight, talk
straight‖ served as a guiding principle for himself and Arthur
Andersen & Co., the accounting firm that he founded.
2. Arthur Andersen‘s reputation for honesty and integrity
resulted in Arthur Andersen & Co. gaining stature in the
, 4 Case 1.2 Just for Feet, Inc.
business community and growing into one of the nation‘s
leading accounting firms by the time of his death in 1947.
3. Leonard Spacek succeeded Arthur Andersen as managing
partner of Arthur Andersen & Co. in
1947 and continued Andersen‘s legacy of lobbying for more
rigorous accounting, auditing, and ethical standards for the
public accounting profession.
4. When Spacek retired in 1973, Arthur Andersen & Co. was
one of the largest and, arguably, the most prominent accounting
firm worldwide
5. The predecessor of Enron Corporation was an Omaha-
based natural gas company created in 1930; steady growth in
profits and sales and numerous acquisitions allowed Enron to
become the largest natural gas company in the United States by
the mid-1980s.
6. During the 1990s, Kenneth Lay, Enron‘s CEO, and his top
subordinate, Jeffrey Skilling, transformed the company from a
conventional natural gas supplier into an energy trading
company.
7. Lay and Skilling placed a heavy emphasis on ―strong
earnings performance‖ and on increasing Enron‘s stature in the
business world.
