Arthur Andersen: Enron audit role and reversal

analysisAndersen’s Enron engagement combined external audit, internal-audit and consulting services. Enron paid about $52 million in 2000, with consulting fees slightly exceeding audit fees. Investigators questioned both technical accounting judgments and the independence implications of this combined role. Those concerns addressed professional work and disclosure, rather than the legal instructions later used in the obstruction trial. ^{1 2 3}

analysisDirectors told the Senate that Andersen issued unqualified opinions and did not object to particular transactions. The same investigation described internal concerns and a maximum client-risk assessment. The Powers report also recorded a dispute over whether Andersen had approved the March 2001 Raptor equity entry. Preserving these differences prevents the audit story from becoming an unqualified account of what every director or auditor knew. ^{2 3}

analysisThe June 2002 obstruction conviction arose from document destruction during the emerging investigation. The Supreme Court reversed in May 2005 because of flawed jury instructions on wrongdoing and the required connection to an official proceeding. That ruling ended the conviction’s force; it did not validate Enron’s financial statements or resolve every civil criticism of the audit. ¹