Question:

Define the problems label each questions

Analyze the situation:

A. What important controls were ignored when LJM1 was created?

B. How might Enron's harsh Performance Review Committee have aided company executives in committing the fraud?

C. The fraud at Enron is one of loads of major financial statement frauds that occurred in recent years (Qwest, WorldCom, Global Crossing, etc.). What are some factors that could describe why the falsifying of financial statements is occurring so frequently?

D. Consider you are a certified fraud examiner but enjoy investing in the stock market as an additional source of income. Upon doing research of Enron's stock, you notice that though 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 describe 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?

Present solutions:

A. How could the auditors-in this case, Arthur Andersen-have performed their audits and not caught the Enron fraud? Is it possible for a financial statement auditor to form a GAAS-compliant audit and not catch major financial statement fraud? Has GAAS auditing changed enough since Enron to guarantee that all frauds are caught?

B. What other solutions have been or might be implemented to check and/or prevent a future Enron-type scenario?