Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, January 28, 2008

Former Andersen Accountants for Enron Settle SEC Charges

The SEC settled a civil action against David B. Duncan, a former Arthur Andersen LLP ("Andersen") partner and former global engagement partner for the Enron engagement, in connection with the audits of Enron Corp.'s financial statements.  Duncan, without admitting or denying the allegations, consented both to a settled civil action charging him with violating the antifraud provisions and to a related administrative proceeding permanently suspending him from appearing or practicing before the Commission.

In its Complaint against Duncan, the Commission alleged that, for the years 1998 through 2000, Duncan was reckless in not knowing that the unqualified audit reports he signed on behalf of Andersen were materially false and misleading. The Complaint also alleged that the Fraud Risk Assessment questionnaires prepared by the engagement team and reviewed by Duncan documented that Enron used "highly aggressive accounting … practices" and entered into "unusual" year-end transactions that posed difficult "substance over form" questions. In addition, an internal Andersen document prepared each year by Duncan and others on the engagement team noted that Enron's use of complex "form over substance" and related party transactions created an "extreme" or "very significant" financial reporting risk.  Despite these risks, Duncan failed to exercise due professional care and the necessary skepticism required under Generally Accepted Auditing Standards ("GAAS") to ensure Enron's financial statements were presented in conformity with Generally Accepted Accounting Principles ("GAAP").

In related administrative proceedings, three other Andersen partners, Thomas H. Bauer, Michael M. Lowther and Michael C. Odom, consented, without admitting or denying the Commission's findings, to settled administrative proceedings which found that they had each engaged in improper professional conduct in connection with their Enron work, and each was denied the privilege of appearing or practicing before the Commission.

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