A Report On The Enron Scandal Accounting Essay

Enron was founded in 1985 through the amalgamation of Houston Natural Gas and Inter North, a natural gas company based in Omaha, Nebraska. Under the leading of its president, Kenneth Lay, Enron sought to work the deregulating of the gas and electricity monetary values. It is discovered by Enron that oil bargainers in Valhalla, New York office have been deviating company financess to their personal histories.

Having so learnt that Louis Borget and Tom Mastroeni, the work forces in charge of the Valhalla operation, were chancing beyond their bounds, destructing trading studies, maintaining two sets of books and pull stringsing accounting in order to give the visual aspect that Valhalla was gaining steady net incomes, the board including laminitis and CEO Kenneth Lay, did non fire the executives because the ulterior CEO stated that they were doing to allow them travel. Rather Lay increases the trading bounds of the Valhalla bargainers and a teletypewriter is sent to the bargainers saying “ Please maintain doing us 1000000s ” .

However, in October 1987 Borget and Mastroeni end up on the incorrect side of a monolithic trade, endangering to ruin the company. Enron executive Mike Muckleroy manages to bluff the market and cut down the loss from one billion dollars to 140 million dollars, therefore salvaging the company. Ken Lay professes daze at the actions of the bargainers. They are fired. Three old ages subsequently, Borget and Mastroeni plead guilty to a figure of felonies. Borget spends one twelvemonth in gaol ; Mastroeni receives a suspended sentence.

In 1989 Enron begins merchandising natural gas trade goods. The company will go the largest natural gas merchandiser in North America and the United Kingdom. In 1990 Jeff Skilling, who had been a adviser for McKinsey & A ; Co. , joins Enron and goes on to go the COO in 1996. While in 1992 the Security Exchange Commission ( SEC ) approves mark-to-market accounting for Enron in which awaited hereafter net incomes from any trade were accounted for by entering their present value instead than historical cost.

In 1993 Enron and the authorities of the province of Maharashtra, India sign a formal understanding to construct a monolithic power works taking to the formation of the Dabhol Power Company, a joint venture of Enron, General Electric and Bechtel. The cost for building ranged to 2. 8 billion dollars. In this undertaking Enron had failed to see that India could non afford to pay for the power Enron ‘s works produced. Therefore, Dabhol ended as a ruin. Tim Belden, caput of Enron ‘s West Coast Trading Desk in Portland Oregon, conducts his first experiment to work the new regulations of California ‘s deregulated energy market.

Known as the Silverpeak Incident, Belden creates congestion on power lines which causes electricity monetary values to lift and at a cost to California of $ 7 million. This was the first of many “ games ” that Belden and his operation drama to work “ chances ” in the California market. In the same twelvemonth Enron ‘s Board of Directors exempts CFO Andy Fastow from the company ‘s codification of moralss so that he can run a private equity fund-LJM1-that will raise money for and make trades with Enron.

The LJM Funds become one of the key tools for Enron to pull off its balance sheet and do investors think that it is executing better than it is. July Enron announces that its Broadband unit ( EBS ) has joined forces with Blockbuster to provide video-on-demand, claiming that the engineering worked where they were fighting with the engineering and the trade collapsed. Nevertheless, Stock hits all-time high of 90 dollars. Market rating of 70 billion dollars. FERC ( the Federal Energy Regulatory Commission ) orders an probe into schemes designed to drive electricity monetary values up in California.

At the same clip Enron announces that President and COO Jeffrey Skilling was taking over every bit main executive in February. Kenneth Lay would stay as president. Later in 2000 Enron uses “ aggressive ” accounting to declare 53 million dollars in net incomes for broadband on a fall ining trade that had n’t earned a penny in net income. In the first few months-Senior spouses from Arthur Anderson, Enron ‘s accounting house, run into to discourse whether to retain Enron as a client. They call usage of mark-to-market accounting “ intelligent gaming. ‘

In March Enron transportations big parts of EES concern into sweeping to conceal EES losingss. Arthur Andersen takes hearer Carl Bass off the Enron history after Bass inquiries Enron ‘s accounting patterns. In June FERC eventually institutes monetary value caps across the western provinces. The California energy crisis ends. August 13, Board meeting. Rick Buy lineations catastrophe scenario if Enron ‘s stock starts to fall. All SPEs ( particular intent entities created to insulate fiscal hazard ) clang. Skilling dismisses this.

That eventide, in board-only session, Skilling resigns. September Skilling sells 15. 5 million dollars of stock, conveying the sum of his sold portions, since May 2000, to over 70 million dollars. October 16 Enron studies a 638-million-dollar 3rd one-fourth loss and declares a 1. 01-billion-dollar non-recurring charge against its balance sheet, partially related to “ structured finance ” operations run by Chief Financial Officer Andrew Fastow. In the analyst conference call that twenty-four hours, Lay besides announces a 1.5 -billion-dollar cut in stockholder equity.

October 17 Wall Street Journal article, written by John Emshwiller and Rebecca Smith, appears. The article reveals, for the first clip, the inside informations of Fastow ‘s partnerships and shows the unstable nature of Enron ‘s concern. In the same month in a monolithic shredding operation, Arthur Andersen destroys one ton of Enron paperss. Weeks subsequently Enron portions plunge below one dollar and on December 2 Enron files for Chapter 11 bankruptcy protection.

January 25 Cliff Baxter commits suicide shortly after he had agreed to attest to Congress in the Enron instance. March 14 Former Enron hearer Arthur Andersen LLP indicted for obstructor of justness for destructing dozenss of Enron-related paperss as the SEC began look intoing the energy company ‘s fundss in October 2001 and David Duncan, Arthur Andersen ‘s former top Enron hearer, pleads guilty to obstructor. Followed by Arthur Andersen ‘s strong belief for obstructor of justness. October 31 Fastow indicted on 78 charges of confederacy, fraud, money laundering and other counts.

February 19 Named in a 35-count indictment, former CEO Jeff Skilling pleads non guilty to wire fraud, securities fraud, confederacy, insider trading and doing false statements on fiscal studies. He ‘s the highest-ranking Enron executive to confront condemnable charges in the energy giant ‘s ruin. Charges against former Chief Accounting Officer Richard Causey besides expanded in the indictment to 31 counts. July 8 Indicted on 11 condemnable counts of fraud and doing deceptive statements, Enron ‘s highest-ranking executive, Ken Lay, resignations to the FBI.

After pleading non guilty, he calls a intelligence conference to proclaim his artlessness and argue that while he takes duty for Enron ‘s failure. February 25 The fraud and confederacy test of Kenneth Lay, the laminitis of the Enron Corporation, and Jeffrey Skilling, its former main executive, is set for January 17, 2006. January 30 Trial Begins on charges of confederacy and fraud against Ken Lay and Jeff Skilling. May 25 Ken Lay is found guilty of all six counts against him. Jeff Skilling is found guilty of 19 of the 28 counts against him.

July 5 Enron laminitis Key Lay dies of a bosom onslaught, less than four months before his scheduled October 23 sentencing. September 26 Former Chief Financial Officer Andrew Fastow is sentenced to six old ages in prison for confederacy. December 12 Jeff Skilling begins his 24-year sentence for fraud and confederacy at a Minnesota Federal Correctional Institute. The Enron dirt essays a narrative where a company with excessively small claimed to hold excessively much and in making so hoodwinked its investors, stakeholders and employees.

The basic causes that can be attributed for Enron ‘s ruin are viz. Mark -to- market accounting. Structured Finance / Special Purpose Entities. Corporate Administration. Using grade to market accounting meant that no affair how much money the company made to the foreigners Enron ‘s net income could be whatever Enron said they were. Under mark-to-market regulations, whenever companies have outstanding energy-related or other derivative contracts ( either assets or liabilities ) on their balance sheets at the terminal of a peculiar one-fourth, they must set them to fair market value, booking unfulfilled additions or losingss to the income statement of the period.

A trouble with application of these regulations in accounting for long-run hereafters contracts in trade goods such as gas is that there are frequently no quoted monetary values upon which to establish ratings. Companies holding these types of derivative instruments are free to develop and utilize discretional rating theoretical accounts based on their ain premises and methods. In order to fulfill Moody ‘s and Standard & A ; Poor ‘s recognition evaluation bureaus, Enron had to do certain the company ‘s purchase ratios were within acceptable scopes.

Enron CFO Andy Fastow continually lobbied the evaluations bureaus to raise Enron ‘s recognition evaluation, seemingly to no help. That notwithstanding, there were other ways to take down the company ‘s debt ratio. Reducing difficult assets while gaining increasing paper net incomes served to increase Enron ‘s return on assets ( ROA ) and cut down its debt-to-total-assets ratio, doing the company more attractive to recognition evaluation bureaus and investors. Enron, like many other companies, used “ particular purpose entities ” ( SPEs ) to entree capital or hedge hazard.

By utilizing SPEs such as limited partnerships with outside parties, a company is permitted to increase purchase and ROA without holding to describe debt on its balance sheet. The company contributes difficult assets and related debt to an SPE in exchange for an involvement. The SPE so borrows big amounts of money from a fiscal establishment to buy assets or carry on other concern without the debt or assets demoing up on the company ‘s fiscal statements. The company can besides sell leveraged assets to the SPE and book a net income.

To avoid categorization of the SPE as a subordinate ( thereby coercing the entity to include the SPE ‘s fiscal place and consequences of operations in its fiscal statements ) , FASB guidelines require that merely 3 % of the SPE be owned by an outside investor. Under Fastow ‘s leading, Enron took the usage of SPEs to new highs of complexness and edification, capitalising them with non merely a assortment of difficult assets and liabilities, but besides highly complex derivative fiscal instruments, its ain restricted stock, rights to get its stock and related liabilities.

With regard to Enron ‘s defunct in corporate administration it is built-in to advert the undermentioned facets: In Enron the Chairman of the Board was Kenneth Lay, and in 2001 Enron had 15 Board Members. Most of the members were so or had antecedently served as Chairman or CEO of a major corporation, and merely one of the 15 was an executive of Enron, Jeffrey Skilling, the President and CEO. The board had five one-year meetings, and conducted extra particular meetings as necessary throughout the twelvemonth.

As provided in U. S. Senate Subcommittee study on The Role of Enron ‘s Board of Directors in Enron ‘s Collapse, the five subcommittees, dwelling of between four and seven members each, had the duties as follows: The theory behind such extended stock option grants to the house ‘s direction and its managers is to aline the involvements of stockholders and direction as a solution to the principal-agent job. However, one of the major drawbacks of alliance of director and stockholder involvement by manner of stock options is that it provides immense inducements for self-dealings for the directors.

High powered incentive contracts may lure directors to “ pull strings accounting Numberss and investing policy to increase their wage. ” They besides argue that the chances to self-deal addition with weak or unmotivated boards supervising the compensation bundles. With the instance of Enron, direction had important fiscal inducement through its stock options to pull strings their net incomes to hike stock monetary values, which created tremendous windfalls for those with equity-based compensation when such uses occurred.

Costly hazard pickings was employed at Enron with the usage of the extremely structured and hedged partnerships. As a consequence, Enron direction had immense potency and realized final payments by manner of their stock options, which provided them inducement to take on unneeded hazard and manipulate net incomes. We have therefore seen a dislocation in another one of the establishments of corporate administration with the ineffectualness of equity compensation for executives. Stock-based compensation is another mechanism that helps to aline director and stockholder involvements and hopefully work out the principal-agent job.

This mechanism is so a tool of corporate administration designed to assist protect investors and stockholders in the house. However, in the instance of Enron such a technique basically failed because of the monolithic inducements for direction self-dealings and to pull strings fiscal statements. One of the major administration issues that was brought to visible radiation by the Enron dirt was the blazing struggle of involvement involved with holding fiscal officers of a company both manage and be the equity holders of entities that conducted important concern minutess with Enron.

Enron ‘s Code of Ethics and Business Affairs explicitly prohibits any minutess that involve related parties unless “ the Chairman and CEO determined that his engagement ‘does non adversely impact the best involvements of the Company ” . With regard to the Chewco dealing, which was managed by Mr. Kopper, the Powers Report concluded that there was “ no grounds that his engagement was of all time disclosed to, or approved by, either Kenneth Lay ( who was Chairman and CEO ) or the Board of Directors ” .

Mr. Kopper ‘s engagement in the Chewco dealing as both general director and investor therefore was in direct misdemeanor of Enron ‘s Code of Ethics and Business Practices, and should hold ne’er occurred. The direction of Enron should hold recognized the struggle and either sought blessing from Mr. Lay, in which instance one would trust the dealing would hold been restructured with a different general director, or it should hold been abandoned wholly. In either instance, such a struggle should non hold been allowed.

Again with the LJM minutess, struggles of involvement were abundant and should hold been avoided. However, the LJM minutess differed from Chewco in one major regard: the struggle of involvement originating from holding the CFO, Mr. Fastow, manage and invest in the entities was approved by the Chairman and Board of Directors. Along with the Board ‘s confirmation of the Chairman and CEO ‘s blessing was the Board ‘s apprehension that a set of controls to supervise the partnerships and guarantee equity to Enron was being implemented by direction.

Concerns about such a struggle of involvement were expressed amongst senior forces at Andersen, in which it is clear that such a struggle should hold ne’er been allowed. With the Chewco partnership, direction, in peculiar Kopper, clip and once more took advantage of the residuary control rights he retained. The director used these control rights to expropriate financess to the manager-owned and operated partnerships. This is a premier illustration of the bureau job associated with the separation of ownership and direction, and is really similar to the other illustration of Fastow ‘s expropriation of financess through transportation pricing.

Kopper ‘s expropriation of financess is once more a dislocation in one of the corporate administration establishments that was in topographic point to protect stockholders. As an employee in the finance division, Kopper had a fiducial responsibility to the stockholders, yet he elected to enrich himself and other investors in the partnerships and therefore another bed of the corporate administration mechanisms had failed.

These struggles of involvement high spot more of the cardinal dislocations in administration within Enron and the deficiency of Board oversight one time such struggles had been approved. After O. K. ing such related-party minutess, the Board of Directors had a general and specific fiducial duty to closely supervise the partnerships and guarantee that the policies and processs in topographic point were in fact modulating the partnerships. However, they failed to make the same.

The processs and controls included the reappraisal and blessing of all LJM minutess by Richard Causey, the Chief Accounting Officer ; and Richard Buy, the Chief Risk Officer ; and, subsequently during the period, Jeffrey Skilling the President and COO ( and subsequently CEO ) . A system of controls as those mentioned would hold provided Enron with a precaution of cheques and balances to protect the involvements of Enron. More specifically, the Finance Committee should hold taken a more proactive function in analyzing and supervising the minutess.

It can be concluded that the Finance Committee failed in its duty of supervising the minutess, particularly given that they were cognizant of the unstable nature of the related-party minutess. A forum for more extended inquiring from managers sing the minutess was the ground that such a commission existed. Their occupation was to examine and take apart the minutess that they reviewed and to supervise hazard, neither of which they did for these related-party minutess. Further, the Audit and Compliance Committee besides failed to closely analyze the nature of the minutess, as is outlined in their responsibilities.

Such complex and hazardous minutess with related-parties deserved near scrutiny, non the cursory reappraisal it received. Audit Committee Relationship with Enron and Andersen During Board meetings Andersen hearers briefed the Enron Audit and Compliance Committee members about Enron ‘s current accounting patterns, informed them of their fresh design, created hazard profiles of applied accounting patterns, and indicated that because of their unprecedented application, certain structured minutess and accounting judgements were of high hazard.

However, as provided in the charter of the Audit and Compliance Committee, it was the Committee ‘s duty to find and “ supply sensible confidence that the Company ‘s publically reported fiscal statements are presented reasonably and in conformance with by and large accepted accounting rules ” . Materials from Audit Committee meetings indicate that its members were cognizant of such bad accounting methods being employed by Enron, but did non move on them. Surely within Andersen it was clear that Enron was prosecuting in “ Maximal Hazard ” .

These concerns, nevertheless, were ne’er decently addressed and were non efficaciously communicated to the Audit and Compliance Committee by Andersen. Despite Andersen ‘s unlawful blessing of such minutess, the Audit and Compliance Committee had a responsibility to guarantee that accurate fiscal statements were produced. The incrimination for such major accounting mistakes is non easy assigned, and includes a web of hapless determinations by direction, Andersen hearers, and the Audit and Compliance Committee.

While it ‘s non sensible to anticipate Audit Committee members to cognize the elaboratenesss of off-balance sheet accounting and non-consolidation regulations for Particular Purpose Entities, it is sensible to anticipate them to inquire the right inquiries which get at the bosom of a possible job every bit good as to make a model within their oversight responsibilities that allows for conversation, unfastened, blunt conversation with direction and with external advisers like Andersen. It is of import to stress that Enron was utilizing engineerings ( or complex fiscal techniques ) that helped to befog the house ‘s true fiscal consequences.

Had investors been more cognizant of and understood the significance of such extremely structured partnerships, they would non hold been as deceived by the fiscal consequences and would hold looked more skeptically at the house ‘s fiscal status. By befoging fiscal consequences through the usage of the SPEs and partnerships, there was a dramatic instance of information dissymmetry between those who understood Enron ‘s fiscal constructions, basically direction and the hearers, and the stockholders and analysts who did non.

The consequence of the information dissymmetry was a transportation of costs to stockholders who were non informed of Enron ‘s accurate fiscal position. Stockholders were now shouldering the costs associated with the extremely structured and hazardous schemes Enron was using, a cost they paid for as Enron ‘s stock monetary value dropped with the public revelation of the fiscal impact the minutess were holding on the house. The deficiency of fiscal coverage transparence represents the failure of another bed of corporate administration protection that stockholders are usually provided.

Stockholders rely on the fiscal studies and information that direction produces. When such studies are inaccurate and have been manipulated stockholders are stripped of another mechanism that helps to truly supervise the public presentation of direction, which is what happened with the instance of Enron. It is of import to place the deficiency of independency and its deductions when looking at the managers of Enron ‘s Board. The independency of managers can play a critical function in measuring one ‘s ability to supply nonsubjective judgement.

From an outside vantage point it would look that Enron so had an independent board, as it contained merely one Enron executive. Fiscal ties, nevertheless, between Enron and a bulk of its managers seem to hold weakened their objectiveness in their inadvertence of Enron. The following are illustrations of such fiscal ties lending to the deficiency of true independency amongst Enron Board members, as cited was cited in the U. S. Senate Subcommittee study on The Role of Enron ‘s Board of Directors in Enron ‘s Collapse: Lord Wakeham received $ 72,000 in 2000 for his confer withing services to Enron, in add-on to his Board compensation.

Herbert Winokur besides served on the Board of the National Tank Company, a company which recorded important grosss from plus gross revenues and services to Enron subordinates from 1997 to 2000. Contributions from Enron and the Lay Foundation totaled more than $ 50,000 to the Mercatus Center in Virginia, where Board member Dr. Wendy Gramm is employed.

Hedging agreements between Belco Oil and Gas and Enron have existed since 1996 worth 10s of 1000000s of dollars. Board member Mr. Belfer was Chairman and CEO of Belco. Frank Savage was a manager for both Enron and the investing house Alliance Capital Management, which since the late 1990 ‘s was the largest institutional investor in Enron and one of the last to sell off its retention. Such relationships with Enron may hold made it hard for such board members to be nonsubjective or critical of Enron direction.

Many of these Enron Board members may hold felt that their compensation ( as a manager or to the manager ‘s attached organisations ) might be jeopardized by examining and oppugning extensively in Board meetings, bring forthing marionettes controlled by the company as managers and therefore weakening the imperative oversight function of the Board and lending to the autumn of Enron. The deficiency of independency on Enron ‘s Board suggests another dislocation of one of the most cardinal corporate administration establishments. The deficiency of independency gets to the nucleus inadvertence map of a board of managers.

It is imperative that a board be capable of looking objectively at the direction and outside professional advisers of a house, and Enron ‘s Board was non capable in this regard. This bed of corporate administration, that is the board inadvertence map, should move as a concluding mechanism to protect investors when other administration establishments have broken down. It should function to assist avoid struggles of involvement, guarantee scrutinizing independency and accurate fiscal coverage, oversee compensation patterns, every bit good as many other dislocations that occurred within Enron.

This last bed, nevertheless, failed to function its intent and was compromised mostly because of the relationships between Enron, direction, and the managers themselves. Enron, an energy trading company is the first dirt which shook up the scrutinizing profession although there were many instances affecting hearers since the 18 century. Enron has caused a crisis to the assurance in hearers and the dependability of fiscal coverage. The audit quality and the independency of the hearers were questionable.

This is because the hearers, who were Arthur Andersen, were non merely having fees for scrutinizing but for non-audit services excessively i. . for consultancy services. In 2001, Arthur Andersen earned US $ 55 million for non-audit services. Furthermore, there were regular exchanges of employees within Enron from Arthur Andersen. To conceal their debt, Enron engaged in “ aggressive accounting. ” They created partnerships with nominally independent companies.

Those companies were headed by Enron White House, and backed, finally, by Enron stock. But Enron did non number their “ spouses ” ‘ debt as its ain, utilizing “ off-balance-sheet ” accounting. Enron besides found ways to number loans from Bankss as “ net income. ‘ A major factor in the dirts of 2001 is an increased focal point on portion monetary value.

This began in the early 1980s, during a period of hostile coup d’etats when a high monetary value was the best defense mechanism. The drift for high executive compensation tied to public presentation came originally from companies taken over that needed to raise portion monetary value rapidly. Institutional investors encouraged this tendency because it seemed to advance good corporate administration by alining executives ‘ involvements more closely with those of stockholders.

Under the common jurisprudence responsibilities and duties, there is no responsibility reposed on the hearers to avoid struggle of involvements. Therefore, the fact that Arthur Andersen was offering non-audit services is non a breach of jurisprudence in the first topographic point. A 2nd of import factor is the deregulating that has occurred since the 1980s. Market deregulating, particularly in energy and telecommunications, started a scramble to develop concern theoretical accounts for a hereafter that no 1 could foretell accurately.

In add-on to market deregulating, a decrease occurred in the 1990s in the legal liability of accounting houses and investing Bankss. It is hard for a company to perpetrate monolithic fraud without the complicity of its comptrollers, bankers and attorneies. Accounting houses had discovered that it was moneymaking to sell confer withing services to their audit clients, therefore alluring them to travel easy on audits lest they lose the consulting concern. It could be seen under the common jurisprudence responsibilities and duties, that there is no responsibility reposed on the hearers to avoid struggle of involvements.

Therefore, the fact that Arthur Andersen was offering non-audit services is non a breach of jurisprudence in the first topographic point. Further under ‘the Companies Act ‘ , although independency of the hearers is indispensable as can be seen in S. 9 of ‘the Companies Act ‘ which disqualifies certain individuals from being eligible as hearers, the proviso does non cover with issues refering the offering of non-audit services to the company. This is because the proviso merely prohibits an employee, officer, spouse or employee or employer of an officer from being appointed as an hearer.

The offering of the non-audit services by the hearers to a company is in the capacity of an independent contractor. The jurisprudence assumes that such individuals are independent. This is because independency is the basis for scrutinizing. However, there will be struggle of involvement and hence the independency of the hearer will be affected. Although Arthur Andersen was doing a study on the company ‘s histories, they did non describe fraud to the stakeholders. This is because the fraud was committed by the direction. Kenneth Lay took place US $ 152 million although the company was confronting a loss.

If the hearers were to describe they likely will non be appointed in subsequent old ages or be engaged for non-audit services. They made sure that they were in the direction ‘s good books. They maintained confidentiality but for the incorrect grounds. The U. S. authorities assured the stakeholders that Enron was merely a instance of one bad apple. Nonetheless, in 2002, WorldCom which is one of the biggest telecommunications company in US collapsed. The issue sing hearers reached a high degree due to Enron. It was found that the hearers, Arthur Anderson, did non take proper stairss in observing accounting abnormalities.

Although it is the responsibility of the hearers to observe accounting abnormalities, they failed to make so. Since they failed to make so truly, they should be apt. As a consequence of Enron, the audit house Arthur Andersen in Malaysia was dissolved. On the other manus, it is hard to find the scope of the hearers ‘ responsibilities and duties. This is because in at least four affairs, the American International Group Incorporated ‘s hearer i. e. PricewaterhouseCoopers are cognizant of debatable accounting but decided that they were non material.

If the position is shared by the scrutinizing profession, it can be considered that the hearers have performed their responsibilities and duties consequently. However, the position must besides be agreed by the tribunals before set uping whether the hearers have performed their responsibilities and duties consequently. One of the first reforms that took topographic point after the dirt was the assignment of Stephen Cooper as Enron ‘s Chief Executive in January 2002. The most publicised reverberation of the dirt was the fiasco of Enron ‘s hearer, Andersen.

Andersen lost several esteemed clients ( including Delta Air Lines, Merck, Freddie Mac, SunTrust Banks and FedEx ) that provided it with combined one-year fees of about $ 100 million. In March 2002, Andersen announced that it was in negotiations to sell itself to one of its major challengers ; Ernst & A ; Young or Deloitte, Touche & A ; Tohmatsu or KPMG. Negotiations about a possible amalgamation or coup d’etat started after it became clear to Andersen that the Department of Justice and Federal prosecuting officers were seeking a condemnable indictment against it for tear uping paperss associating to the probe.

The concluding blows came when Andersen was banned from US authorities work after being indicted by a federal expansive jury on the charge of obstructor of justness. This was coupled with the instance brought by the US Department of Justice against the Andersen UK office for fall ining in the shredding of Enron paperss. This caused Andersen UK patterns to reopen amalgamation negotiations with other accounting houses in response to these claims made against the office. On June 15, 2000, a federal jury convicted Arthur Andersen of obstructor of justness for hindering an probe by securities regulators into the fiscal fiasco at Enron.

The determination was based on a individual altered internal memo that showed the accounting house interfering with the authorities ‘s probe into Enron ‘s prostration. Therefore, the guilty finding of fact against Arthur Andersen – on a charge brought because of the shredding of 1000s of records and omission of 10s of 1000s of e-mail messages – was finally reached because of the remotion of a few words from a individual memoranda.