Case $4$

Until its involvement as Enron$$s auditor, Arthur Andersen was recognized as one of the most respected CPA firms in the world. Arthur Andersen, as did other large CPA firms, operated as a limited liability corporation, or LLC$.$ At the time that its involvement as Enron$$s auditor was making news every day, an article in The Wall Street Journal stated that it wasn$$t clear whether the LLC form of organization was going to offer Andersen$$s partners protection from creditors$$ lawsuits or whether creditors would be able to take the personal assets of Andersen$$s partners. Assume that Andersen had $2,000$ partners and that creditor claims in the Enron case totaled $$50$ billion.

If Arthur Andersen was a corporation, how would you expect to see creditor litigation reported in the financial statements?

Would failure to report the litigation constitute financial statement fraud?