Case 2.

Enron:
Audit Documentation

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Enron Case
Relevant Technical Knowledge
PCAOB AS #3 – Paragraph #2
 “the written record of the basis for the
auditor's conclusions that provides the
support for the auditor's representations,
whether those representations are
contained in the auditor's report or
otherwise.”

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Enron Case
Relevant Technical Knowledge
SARBOX Section 103
 The PCAOB must require registered public
accounting firms to “prepare, and
maintain for a period of not less than 7
years, audit work papers, and other
information related to any audit report, in
sufficient detail to support the conclusions
reached in such report.”

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Enron Case
Relevant Technical Knowledge
PCAOB AS #3 – Paragraph #4
 Audit documentation should be prepared
in sufficient detail to provide a clear
understanding of its purpose, source, and
the conclusions reached. Also, the
documentation should be appropriately
organized to provide a clear link to the
significant findings or issues.

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Enron Case
Relevant Technical Knowledge
PCAOB AS #3 – Paragraph #14
 “The auditor must retain audit
documentation for seven years from the
date the auditor grants permission to use
the auditor's report in connection with the
issuance of the company's financial
statements (report release date), unless
a longer period of time is required by
law.”
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Psychology Literature -
How to Best Acquire Knowledge
 Feature Repeated Case Experiences with
Feedback; and
 Teach Technical Concepts within Real-
Life Contexts
 Consider the following additional cases:
 Enron: Independence
 Sunbeam: Due Care
 WorldCom: Professional Responsibility

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Epilogue - Enron
 Cliff Baxter, Vice Chairman, committed
suicide due to fraud
 Arthur Andersen indicted for obstruction
of justice due to destroying evidence and
barred from auditing public companies for
five years
 Former CEO Jeffrey Skilling sentenced to
24 years in prison

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Epilogue - Enron
 Founder Kenneth Lay dies from a heart
attack before his sentencing
 Many top Enron executives were
sentenced to multi-year prison terms.
 Eligible shareholders will receive $7.2
billion in settlements for their investment
losses