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2) In your own words, summarize how Enron used SPE’s to hide large
amounts of company debt
(a) What are the responsibilities of a company’s board of directors?
(b) Could the board of directors at Enron-especially the audit committee-
have prevented the fall of Enron?
(c) Should they have known about the risks and apparent lack of
independence with the Enron’s SPEs? What should they have done
about it?
(a) Explain how “rule-based” accounting standards differ from
“principle-based” standards.
(b) How migh t fundamentally changing accounting standards from
“bright-line” rules to principle-based standards help prevent another
Enron-like fiasco in the future?
(c) Some argue that the trend toward adoption of international
accounting standards represents a move toward more “principle-based”
standards. Are there dangers in removing “bright-line” rule? What
difficulties might be associated with such a change?
(a) What are the auditor independence issues surrounding the provision
of external auditing services, internal auditing services, and management
consulting services for the same client?
(b) Develop arguments for why auditors should be allowed to perform
these services for the same client.
(c) Develop separate arguments for why auditors should not be allowed
to perform non-audit services for their audit clients. What is your view,
and why?