AC 440: Enron & Lehman Brothers Fraud Scandals

Answer each question in 3-5 sentences, demonstrating your understanding of fraud examination principles.

1. The Fraud Triangle

Explain how both Enron and Lehman Brothers fit into Donald Cresseys Fraud Triangle (Pressure, Opportunity, and Rationalization). Provide specific examples from each case.

2. Leadership & Ethical Failures

Compare the leadership styles of Jeffrey Skilling (Enron) and Richard Fuld (Lehman Brothers). How did their decisions contribute to the downfall of their companies?

3. Role of Auditors & Conflicts of Interest

What role did Arthur Andersen play in Enrons fraud, and how did this case contribute to the firms collapse? How did Ernst & Youngs audit of Lehman Brothers fail to prevent misleading financial reporting?

4. The 2008 Financial Crisis Connection

While Enrons fraud was an accounting scandal, Lehman Brothers collapse was tied to the 2008 financial crisis. How did Lehman Brothers use of Repo 105 transactions contribute to its failure, and why was this deceptive to investors?

5. Internal Control Failures

Discuss at least two internal control weaknesses that allowed fraud to occur in both companies. How could stronger internal controls have prevented the scandals?

6. Legal Consequences & Regulatory Changes

What were the legal consequences for executives at Enron and Lehman Brothers? How did these cases influence regulatory changes, such as the Sarbanes-Oxley Act (SOX) and Dodd-Frank Act?

7. Accounting Manipulation Techniques

Describe one specific accounting trick used by Enron (such as mark-to-market accounting) and one used by Lehman Brothers (Repo 105). How did these methods allow the companies to mislead investors?

8. Whistleblowers & Red Flags

Who were the key whistleblowers in the Enron and Lehman Brothers cases? What red flags were present, and why were they ignored?

9. Impact on Investors & the Economy

Explain how the collapse of Enron and Lehman Brothers affected investors, employees, and the overall economy. Which collapse had a greater economic impact, and why?

10. Lessons for Future Fraud Examiners

Based on what happened at Enron and Lehman Brothers, what are three major lessons that fraud examiners and auditors should take away from these cases?

Kerr, D.S., Elder, R.J., Arens, A.A. (2017). Integrated Audit Practice Case 7th edition Armand Dalton

Publishers 978-0-912503-68-4