Enormo Case Study: Ultro's Fraud Research Proposal

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However, since Enormo refuses to consider the seriousness of Ultro's illegal actions, the accounting firm should immediately distance itself from the company, and refuse to perform the audit.

The accounting firm has two options: firstly, in the name of confidentiality, it could remain silent, and hope that no other firm would take Enormo's case, which would pressure Enormo to rectify the situation and reveal the actions of Ultro to the world. Unfortunately this seems unlikely, given Enormo's intransigence and the unscrupulousness of many accounting firms. If the firm does not reveal Ultro's actions, untold numbers of employees and investors might suffer after the scandal was revealed and Enormo's reputation resulted in financial devastation to the company and its subsidiaries.

Granted, there is a great temptation not to bring the case of Enormo to regulators, for fear of the accounting firm seeming like a 'tattle-tale' of its various clients' misdeeds.

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However, the risk of not revealing the fraud to the world is much greater. Once the scandal is brought to light, the name of the accounting firm could be tainted with guilt by association. People will surely ask why the accounting firm did not immediately notify the Securities and Exchange Commission (SEC) of the fraud. The venerable firm Arthur Anderson, the respected accounting firm, was destroyed because it lost its credibility during the Enron and World Com scandals. This accounting firm should not suffer the same fate, simply because Enormo has no respect for the law.

c.) State your opinion as to the course of action that is appropriate. Explain.

Enormo should be given one last chance to reveal what its subsidiary, Ultro, has done. If it does not, then the accounting firm should report the illegal actions of Ultro to the SEC......

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