1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Case 2.1 Enron: Independence

2. 2 Enron Case Relevant Technical Knowledge SARBOX Section 201  it shall be unlawful for a registered public accounting firm to provide any non-audit service to an issuer contemporaneously with the audit, including: (1) bookkeeping; (2) financial information systems design and implementation; (3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports; (4) actuarial services; (5) internal audit outsourcing services; (6) management functions or human resources; (7) broker or dealer, investment adviser, or investment banking services; (8) legal services and expert services unrelated to the audit; (9) any other service that the Board determines, by regulation, is impermissible.

3. 3 Enron Case Relevant Technical Knowledge SARBOX Section 203  the lead audit or coordinating partner and the reviewing partner must rotate off of the audit every 5 years SARBOX Section 206  requires a “one year cooling off period” before an audit firm employee accept a position as CEO, CFO, Controller, or Chief Accounting Officer of a former client

4. 4 Enron Case Relevant Technical Knowledge SARBOX Section 301  requires that the “audit committee of an issuer shall be directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by that issuer.”

5. 5 Psychology Literature - How to Best Acquire Knowledge  Feature Repeated Case Experiences with Feedback; and  Teach Technical Concepts within Real- Life Contexts  Consider the following additional cases: The Fund of Funds: Independence Sunbeam: Due Care WorldCom: Professional Responsibility

6. 6 Epilogue - Enron  Cliff Baxter, Vice Chairman, committed suicide due to fraud  Arthur Andersen indicted for obstruction of justice due to destroying evidence and barred from auditing public companies for five years  Former CEO Jeffrey Skilling sentenced to 24 years in prison

7. 7 Epilogue - Enron  Founder Kenneth Lay dies from a heart attack before his sentencing  Many top Enron executives were sentenced to multi-year prison terms.  Eligible shareholders will receive $7.2 billion in settlements for their investment losses