Arthur Andersen partner Michael Jones, in his documentation of the critical meeting attended by key Andersen partners to discuss their client continuance decision, recorded the following: We discussed Enron's dependence on transaction execution to meet financial objectives, the fact that Enron often is creating industries and markets and transactions for which there are no specific rules, which requires significant judgment and that Enron is aggressive in its transaction structuring. We discussed consultation among the engagement team, with Houston management, practice management, and the PSG (Professional Services Group) to ensure that we are not making decisions in isolation.
Ultimately, the conclusion was reached to retain Enron as a client citing that it appeared that we had the appropriate people and processes in place to serve Enron and manage our engagement risks. We discussed whether there would be a perceived independence issue solely considering our level of fees. We discussed that the concerns should not be the magnitude of fees but on the nature of fees. As you can see, the partners addressed the key issues discussed in the chapter but seemed to decide that Arthur Andersen had the appropriate processes in place to keep audit risk at an acceptable level.
APPLYING YOUR PROFESSIONAL JUDGMENT
1. While hindsight provides perfect clarity, what judgment traps do you think may have hindered these partners in making their client retention decision?
2. What processes does the partner highlight in his memo that address judgment traps?
3. What ethical blind spots do you think may have influenced their decision-making process?