Having competent professional accountants are invaluable assets to the company because they are able to adopt a pragmatic and objective approach to solve issues. Accountancy professionals assist business executives with corporate strategies, provide advice with product cost, improve mitigate risks of the company. Public accountants not only serve the interest of the company but also have the duty to the general public. Therefore, they have a key role in helping organizations to act ethically. Ethical codes for professional accountants globally compels, regardless of the roles that they perform, to uphold values of integrity, objectivity, professional competence and due care, confidentiality, and professional behavior. However, many times, …show more content…
Since then, Enron has become a symbol of corporate fraud and corruption. With the bankruptcy of Enron, undoubtedly, the investor received a lot of lost, especially those who have a large number of Enron stock. In accordance with US law, after filing for bankruptcy protection, Enron 's assets will give priority to pay taxes, repay bank loans, pay staff salaries. After paying all these, the company is already worthless and the investors certainly lose everything. After Enron’s accounting fraud, the government created the Sarbanes -Oxley Act of 2002, a United States Federal law that requires top management must individual certify the accuracy of the financial information. Even though the creation of Sarbanes- Oxley Act ensures the credibility of the published financial reports, the public trust in the accounting and assurance industry has decreased significantly. In addition to the accounting fraud that had happened, technological innovation has decreased the face-to-face communication between accountants and their client. Thereby, creating a disadvantage for the company to build a strong trust relationship with their client. Nowadays, technology is an essential part of business operation. Many accounting firms utilize technology devices such as emails and phones to communicate with their clients. However, one of the most effective communication is face to face communication
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In some particular case, the accounting standards exactly are the problems. The legislation fixed it though asking those special institution, such as the Securities and commission and the Financial Accounting Standards Board, to tighten the accounting standards. For instants, the “special purpose entities”, that is a institution created by non-profit company , used to treat some particular risk facing by the company during their operating. Nevertheless, in Enron’s case, such institution seems just like useless decorations for their fraud. As required in Sarbanes-Oxley, the capital of Financial Accounting Standard Board should come from itself or public companies. Have no benefit-based relationship with accountants. It ensure that the membership of Financial Accounting Standard Board was independent from accounting operation. The rise in accounting restatements and earnings manipulation suggested that the deeper issue was not with the accounting standards themselves, but rather with the enforcement of those standards through auditing (Bratton, 2003). The Sarbanes-Oxley created a new institution in the first section named Public Company Accounting Oversight Board(PCAOB).
In the begging of 2000’s after a period of corporate scandals involving large public companies, senate enacted the Sarbanes-Oxley Act, which is referred to as SOX or Sarbon. The act was enacted 14 years ago on July, 30 2002. Also this act was known as the “Public Company Accounting Reform and Investors Protection Act of 2002.” There are many serious accounting and corporate scandals that influenced companies Tyco International, Global Crossing, Enron, WorldCom. For instance the bankruptcy of “ENRON” in 2001 was the one of largest bankruptcy in the U.S. history. That time investors lost $74 billion and thousand employees losing their jobs, retirement savings and medical plans. The time during the scandals happened, where the mentioned
On December 2001 Enron, a successful American energy company, was filed for bankruptcy. It was held that what led to the bankruptcy was, among other things, the lack of transparency in the functions of auditing and accounting. This is why, in July 2002 was adopted the Sarbanes-Oxley Act, with the aim to overcome these directorship and accountability weaknesses.
Accountants are considered to be the only person that knows you better than you know yourself, which is why the most important factor when considering an accountant is trust. They are responsible for confidentiality of financial information; record keeping by daily posting; and consulting input on market trends, real estate purchases and investments. Due to these responsibilities, accountants are obligated to act in the interest of the party and also respect the Code of Ethical Principles and Standards. In the case of Rihanna (Plaintiff) vs Berdon LLP (Defendant), Rihanna accuses her accountants of very strong claims. These claims include Rihanna losing millions due to mismanagement of her cash flow, expense, and touring income; mishandle of her taxes and failure of applying for tax returns; and lastly omission of discouragement of buying multi-million dollar house when experiencing financial problems.
Imagine over $60 billion of shareholder value, almost $2.1 billion in pension plans, and initially 5,600 jobs - disappeared (Associated Press, 2006). One would have to wonder how that is possible. These are the consequences the investors and employees of Enron Corporation endured after the Enron scandal started to unravel. This paper will focus on the infamous accounting scandal of Enron Corporation. It will also discuss how the company was able to fool investors by producing misleading financial statements, why they were not caught sooner, and new regulations enacted in response to the scandal.
The Enron was known as one of the energy giants of the United States. It was named as the “America’s Most Innovative Company” by the Fortune. Just before its collapse, its overall rating was AAA+ with the revenues beyond $100 billion. With such impressive reputation, by the start of 21st century, Enron was perceived to be indestructible. There have always been rumors about suspicious accounting activities and involvements of the top management of Enron. However, no evidence could be found about it
In the accounting field General Accepted Accounting Principles (GAAP) are main Code of Principles developed by Federal Accounting Standards Advisory Board (FASB). Term GAAP has a specific meaning for all accountants and auditors. However, in cases when GAAP procedures will not provide a resolution of the accounting issue the accountant faces a moral dilemma. This is a situation whether there are several conflicting rules or because there are no GAAP rules (J. Wiley & Sons Inc., 2006).
Forensic accountants need to possess strong written and oral communication skills. In this profession it is imperative to have a strong accounting background; a thorough knowledge of auditing, risk assessment, and control and fraud detention; and a basic understanding of the legal system. It is important for forensic accountants to possess the ability to interview and effectively elicit information from people who may not be willing to give truthful answers. Therefore, it is important for forensic accountants to be skeptical of those people that they deal with. Knowledge and experience in financial planning and management techniques, as well as advanced computer skills, including an ability to understand and apply various information technology and accounting systems, are also key characteristics of forensic accountants” (Crumbley, 2003)
It is clear that the bringing about of the Sarbanes-Oxley Act followed up one of the rougher times in US corporate history. The public downfall of the large companies like Enron and WorldCom damaged any trust in US corporations and it cost investors many billions of dollars. It even led to the destruction of one of the largest accounting firms in the US, Arthur Anderson. Sarbanes-Oxley Act was the response that the government gave in hopes that by mandating that companies report honest, accurate, and valuable financial records, it will renew investor’s trust in public corporations (Stults, Gregg).
The purpose of this article is analyze the downfall of the Enron Corporation and how the collapse of Enron Corporation consequence affected the United states financial market. Enron Corporation was the seventh largest company in the United States, and had the biggest audit failure. In this Research paper, it describes the reason of Enron Corporation collapse, including details of the internal/ external management, accounting fraud, and conflict of interest. Enron is the largest bankruptcy in America history!
It is hard to believe Enron, the seventh largest leading corporation in electricity, natural gas and communications based in United Stated filled for Chapter 11 bankruptcy in December 2001. The company with claimed revenues of $101 Billion in 2000 finally ended up when investigations revealed that it had inflated its earnings by “hiding its debt, committing institutionalized, systematic and well-planned accounting fraud”. The scandal is the most significant corporate collapse in the United States since the failure of many savings and loan banks during the 1980s. (1)
When in Rome, do what the Romans do, should that be our thinking when it comes to making ethical decisions. Can ethics be flexible where business leaders and organizations operates with one set of standards in their homeland and another overseas (George, 2008)? Now, that our world has gone global, it is imperative that we maintain a common set of ethical standards of making decisions and running businesses across the globe. Ethics, derived from the Greek word “ethos” means custom or usage, it includes the ideas of character and of disposition. Ethical standards are based on the principles of trust, integrity, fairness, equality, and accountability among others.
Several parties were responsible for Enron crisis, including independent auditor, key executive officers, internal auditors, SEC and FASB. The hypocrisy, dishonorable actions and unethical behavior of Kenney Lay, Jeffrey Skilling, Andrew Fastow led to bankruptcy. This and many other problems, such as loss in transactions involving the swaps stocks, SPE related issues and est., finally contributed to crisis. As Enron executives, all of their concerns should have been focused on Enron’s profits, but seems that many of them only cared about their wealth. When financial problem surfaced, they did not attempt to fix it, but made efforts to maintain their own benefits and ignored the whole company’s and
There are a number of beliefs that led to the fall of Enron. Some say it is the lack of ethical corporate behavior that led to Enron’s bankruptcy. Some say, it was due to the management’s inability to update themselves consistently with capital related information during its corporate gluttony. Some blame their accounting practices such as the mark- to- market that led to their downfall. Others pointed out on mismanagement of their risks as well as stretching out of their capital reserves as well as the various forms of management that were applied by the various company leaders were among the primary reasons to as why the company was led to bankruptcy as well as moral responsibility. (Prebble, 2010). ). Despite this various analysis