The case of Enron Corporation and Andersen, LLP can be noted as one of the most infamous fraud scandals in US history. Investors lost millions of dollars and ruined the public’s trust. Enron was once the seventh largest public company in the United States and Andersen LLP was the world’s largest and most respected business organizations. Enron’s stock prices soared to approximately $100 to less than $10 in 2001. How did these two big giants fall into oblivion and what could have been done to avoid the disaster of these companies?

Enron Corporation was formed as the result of the July 1985 merger of Houston National Gas and InterNorth of Omaha, Nebraska. Their headquarters were located in Houston, TX. In its earlier years, Enron was a natural gas pipeline company whose primary business strategy involved entering into contracts to deliver specified amounts of natural gas to businesses or utilities over a given period of time. Enron soon became involved in in the transmission and distribution of electricity in addition to gas in the US as well as the development, construction, and operation of power plants and pipelines worldwide. Enron’s CEO was Jeffrey Skilling who only held his position for six months and Kenneth Lay, who was the CEO/Chairman of Enron from 1996 through 2001, was reinstated to CEO after Skilling’s resignation due to “purely personal” reasons.

Andersen. LLP was originally founded as Andersen, Delaney & Co. in 1913 by Arthur Andersen, an accounting professor at Northwestern University in Chicago. By Andersen taking tough stands against clients’ aggressive accounting treatments, Andersen quickly gained a national reputation as a reliable keeper of the public’s trust.

Enron paid Andersen $25 million for audit work and $27 million for consulting services and became one of Andersen’s largest and riskiest clients. During an audit/consulting