Enron’s accounting transgressions misled investors to believe that the company was more profitable and less leveraged than it really was. 23. Andersen audited Enron for all sixteen years since the company’s formation. On top of pure audit, it also sold internal-audit and consulting services.
Despite this privileged insight, Andersen did not discover that Enron was publishing incorrect financial statements leading to the term “Enronisation of financial statements”. This raises an important question of conflict of interest. Is it the case that the extensive consultancy work done by Arthur Andersen for Enron compromised its independence leading to its failure to detect erosion of accounting standards?