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Case analysis: Innovation Corrupted: The Rise and Fall of Enron (A)

Required for the Analysis of a Case Study:
Look more closely at Enron and why a big company that was so successful collapsed so quickly. In your observation, look at internal policies as well as the role of the external auditors. What weaknesses or strength did you discover in the internal policies as well as the role of the external auditors?
In addition to the requirements for the analysis of a case study covered below, please specifically answer the following questions:
1. In 1998, MBAs from leading schools including Harvard turned down offers from outstanding firms such as McKinsey, Parthenon, and Goldman Sachs to join Enron. What made Enron so appealing?
2. How sound was the business model developed by Skilling and Lay for gas and for other products?
3. What explains the many strategic misadventures by Enron domestically and internationally?
4. How did the internal systems and processes support or inhibit Enron's strategy?

Reference: Knapp, Michael C. (2011). Contemporary Auditing: Real Issues and Cases. PP 3-22. 8e.

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Step 1
The internal policies devised by Jeffery Skilling was do it right do it now, and do it better. The culture encouraged employees to be better, innovative, and aggressive. The employees were expected to perform to a standard that was continually being raised. What mattered was adding value. The culture encouraged breaking the rules. Unchecked ambition was rewarded and poor performance was punished. There were short run gains but in the long term employees were forced to test and break the limits of moral behavior.

The role of the external auditor was deplorable. The standards of audit were very low because conflict of interest had taken place. Enron paid large consulting fees to Arthur Andersen. The auditor's methods were ...

Solution Summary

This solution explains auditing shortfalls at Enron. The sources used are also included in the solution.