QUESTION

Enron was an American energy company based in Houston, Texas. Enron scandal which was revealed in 2001 has resulted in the dissolution of the Arthur Andersen. Arthur Andersen was one of the Big 5 audit firm at that time. Enron was seen as the biggest audit failure.

World.com was an American telecommunications company. It was the second largest long distance phone company in the US. In 2002 WorldCom submitted the largest bankruptcy filing in the US history. The WorldCom scandal cost 30 000 employees their jobs and cost investors $180 billion. Arthur Andersen was WorldCom's auditor during the five financial quarters in question.

Required:

a)Provide detail explanation of the factors that have affected the incidence of lawsuits against CPA in recent years .

b) The Enron and WorldCom bankruptcy was due to accounting fraud. Provide a background research on these two companies and describe the nature of accounting fraud that was committed by the two companies.

c) What are the business risks faced by these two companies, and how did those risks increase the likelihood of material misstatements in their financial statements?

d) A perceived lack of integrity caused irreparable damage to Arthur Andersen. How can you apply the principles learned in this case personally? How are CPA firms different from other professionals?