The two retail companies picked are Walmart and Costco whose 2017 Financial statement links are provided below: WALMART https://www.nasdaq.com/symbol/ wmt/financials?query=income- statement COSTCO https://www.nasdaq.com/symbol/ cost/financials?query=income- statement Both organizations are well known brands and position themselves well with their customer base. Walmart’s value proposition is “We save people money so they can live better”. On the other hand, Costco’s value proposition is “All-in-one convenience and everyday affordability”. Both retailers focus on cost saving for their customers. Looking at their financial statements and by analyzing them a few key areas are evident when comparing the two organization. Looking at the current ratio and quick ratio we can determine the short-term solvency of each organization. The current ratio can be determined by dividing the assets by the liabilities. Walmart’s current ratio sits at 0.86 while Costco’s sits at 0.99. The quick ratio is c...
This paper discusses and analyzes the relationship and conflict of interest between Arthur Andersen LLP, a fast-growing accounting and financial audit company in the United States, and its client Enron, an American energy company, with incorrect financial reports, then will provide some recommendations that could avoid the conflict of interest.
Discussion
Arthur Andersen LLP established in 1913 by Arthur Andersen, was one of the largest audit firms in the world, Andersen was one of the fastest-growing and most profitable auditing units and consulting networks in the world in 1984. Arthur Andersen and its largest client in the business faces a serious integrity issue that could have avoided if the conflict of interest in their areas of business was properly addressed.
The issue starts when it was revealed that Enron ‘s financial statements report which was audited by Arthur Andersen contained some incorrect financial information. Andersen was considered responsible for auditing the Enron’s financial statements and expressing an unqualified view, that confirmed the accuracy and healthiness of the financial statements of the Enron.
There are a number of apparent conflicts of interest in the relationship between Arthur Andersen and its client Enron. For example, Arthur Andersen providing both audit and consultancy services to Enron at the same time is a vivid conflict of interest, one could conclude that Andersen is both involved in developing the work including financial documents and then auditing its own work at the same time, which is not acceptable by any standard. Even though it is understood that Arthur Andersen’s consulting line of business was separated from the audit function, and per the order of the court a separate legal entity was created for the consulting side of the business, it would have still been much wiser for Enron to avoid from entering in business from two directions with firms with same mandate, scope of work and profit sharing principles.
Andersen failed to sustain the management and accounting principles and practices which is essential in business decision-making (Benson and Scott, 2002).
The conflict of interest could have been avoided if the issue was addressed in its roots at the beginning, firstly Enron should not have hired Arthur Anderson in two lines of businesses, secondly, they could have both assured not to engage in unethical practices such as expressing the view on the wrong document.
In addition to the government, other oversight bodies exercising oversight on the work of Arthur Andersen and Enron could have engaged in advance, detected the issue at the grassroots level and addressed it before such a time.
The government regulations should be designed in such a way that does not permit any conflict of interest from happening right from the beginning, for example, a law that clearly prevents auditing and consulting firms from entering into both lines of business i.e. audit and consulting services with the same client, or if they enter there has to be clear delineation between how the same firm could enter in different spheres with one client.
Both Andersen and Enron were engaged in unethical acts at different levels. Firstly, entering into two lines of business that they knew was a clear conflict of interest was unethical. Secondly, Andersen and Enron produced wrong financial data which was a crime and very unethical act. Auditors are the most trusted people by the public, their view is the cause for the decision of the general public who invest in the company as well as the investors of the company, therefore, expressing view on the wrong financial information is absolutely unethical.
References
Arthur Anderson: An Accounting Confidence Crisis (N.D.) Daniels Fund Ethics Initiative. University of New Mexico. Retrieved from: https://danielsethics.mgt.unm.
Benson, G. & Scott, K. (2002). Enron and Accounting Issues. AEI Shadow Financial Regulatory Committee. Retrieved from: http://www.aei.org/
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