The Enron case is a very popular case to show how the profession of accounting is vital to make the corporate world of business flow reliably. Enron was recognized as one of the world’s major electricity, natural gas, communications and pulp and paper’s company. However Enron was found to record assets and profits at inflated, fraudulent and non-existent amounts. Debts and losses were found to be excluded from financial statements along with other major transactions between Enron and other companies to make their company’s book look better. This unethical behavior along with loopholes in the accounting standards and regulations allowed this massive scandal to occur. I believe with proper governance and more ethical management this scandal …show more content…
I believe this is an excellent example to show the requirement of accounting profession in the corporate world and the consequences of not unethical management accounting.
Section 2: Introduction – in this section: (i) provide the overall summary for the case and background information about the case organisation; (ii) describe the environment/context of the case organisation, major players, its accounting & auditing practices, its corporate governance & culture, and ethical foundations within the case organisation; (iii) describe the specific issues/challenges you identified which arose within the case organisation. You may include tables, figures, sidebars, charts and graphs to highlight key points.
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
Enron was an energy trading and communications company located in Houston, Texas. During 1996-2001 Enron was given the name of America’s Most Innovative Company by Fortune magazine as it was the seventh-largest corporation in the US. The problem that led this company to bankruptcy was due to the fact that fraudulent accounting practices took place allowing Enron to overstate their earnings and tuck away their high debt liabilities in order to have a more appealing balance sheet (Forbes.com, 2002). Enron’s accounting team “cooked” the books to every meaning of the word so that their investors would not see anything wrong with the failing organization. This poorly structured company led people to jail time, unemployment, and caused retirement stocks to be dried up. Enron had a social responsibility to its stockholders and rather than being up front and honest about the failing company they hid every financial flaw in order to keep receiving money from its investors. By Enron not keeping a social
Enron’s fraudulent financial practices lead to the Sarbanes Oxley Act of 2002. Mistakes made by the company and their leadership shocked the world and cost billions. Enron’s leadership could have taken steps to prevent or mitigate the repercussions of their actions. The act restored ethical and reliable financial practices to the market.The major provisions of the act made corporations responsibility for financial reports, and required internal and external audits. The Act changed the accounting regulatory environment. And although corporations incurred the additional expense of audit and new reporting standards, these changes restored consumer investing confidence, strengthening the corporations and the stock market overall. (Flanigan, 2002.)
As with much of Enron, their outward appearance did not match what was really going on inside the company. Enron ended up cultivating their own demise for bankruptcy by how they ran their company. This corrupt corporate culture was a place whose employees threw ethical responsibility to the wind if it meant financial gain. At Enron, the employees were motivated by a very “cut-throat” culture. If an employee didn’t perform well enough, they would simply be replaced by someone who could. “The company’s culture had profound effects on the ethics of its employees” (Sims, pg.243). Like a parent to their children, when the executives of a company pursue unethical financial means, it sets a certain tone for their employees and even the market of the company. As mentioned before, Enron had a very “cut-throat” attitude in regards to their employees. This also became one Enron’s main ethical falling points. According to the class text, “employees were rated every six months, with those ranked in the bottom 20 percent forced to leave” (Ferrell, 2017, pg. 287). This system which pits employees against each other rather than having them work together will create a workplace of dishonesty and a recipe of disaster for the company. This coupled with the objective of financial growth, creates a very dim opportunity for any ethical culture. “The entire cultural framework of Enron not only allowed unethical behavior to flourish,
“Enron is a company that deals with everyone with absolute integrity. We play by all of the rules. We stand by our word” (Brewer 50). Enron executive Ken Lay was trying to assure their customers that they are people to trust by saying things like we play by all the rules and everyone is dealt with absolute integrity. When indeed he contradicted all that he stated in that quote by encouraging the use of fraudulent accounting practices to distribute losses to smaller accounts called subsidiaries by his accounting teams to make company performance reports look better to future and current investors. These practices caused a manipulation of their market value, causing their stock value to rise. In Enron’s attempt to hide their mistakes a large investment was made into a joint venture with Blockbuster. Then a secret set up partnership with Canadian Bank that lent Enron $115 million in exchange for future profits from the movie venture over a span of 10 years. The investment in Blockbuster never made any money, and Enron counted the Canadian loan as profit (Keller). In Enron’s terrible attempt to hide their mistakes, illegally accounted their loan from Canadian Bank as a revenue. According to the Generally Accepted Accounting Principles, also known as GAAP, any loan received from a bank or organization should be recognized as an accounts
The entire downfall of the giant Enron was brought about due to various ethical lapses that, in the end, would muddy the reputation of anyone who had a connection with the company. Even according to Gibney (2005), it was widely known that Enron’s CFO Andy Fastow would tend to implement and use less than ethical financial practices. The unethical behavior, though, does not usually just occur with one person or one position. Gibney (2005), throughout the entire documentary, hints at the idea that all Enron management/leadership knew of and were complicit in the unethical practices. In the end, Enron had betrayed the trust of thousands of employees and investors. Both of these betrayed parties would try to seek some level of justice in what had become one of America’s worst economic blunders (Gibney, 2005).
Unfortunately, scandals like Enron are not isolated incidents and the last decade has offered Americans a disheartening perspective with comparable scandals like that of WorldCom and Tyco, Sunbeam, Global Crossing and many more. Companies have a concrete responsibility not just to their investors but to society as a whole to have practices which deter corporate greed and looting and which actively and effectively work to prevent such things from happening. This
Abstract……………………………………………………………………………..…...4 1. Introduction ……………………………………………………………………..……5 2. Literature review ……………………………………………………………….….....5 2.1 Accounting failure concept:……………………………………………….…..….5 2.2 Sample of accounting failure in organization………………………………....…6 2.2 Ethical issue concept………………………………………………………….….9 3. Research methodology…………………………………………………………..…...12 4. An
Enron had been the darling of corporate America: it was voted its most innovative company, adviser to US Government, a Fortune 500 top ten player, backed by the world’s biggest banks and rated by the top market analysts (Tonge, Greer, & Lawton, 2003). While it is shocking to hear about ethical scandals from big corporations, this paper discusses the major reasons and lessons learnt from Enron’s scandal. Enron’s scandal wasn’t caused by few “bad apples” but the organization’s culture, as set by Enron’s leadership, was the main driving force toward unethical behavior (Kulik, O 'Fallon & Salimath, 2008). However, it didn’t take one party to destroy this great structure; many parties were responsible for it starting with its leadership, then its auditors, and the entire US financial system that consequently learnt the lesson and have made major changes that seem to be effective nevertheless continuous follow up and close monitoring is still necessary to avoid having another Enron in the future.
The objective of an audit is to “obtain reasonable assurance” of the credibility of the financial statements of a company . However, in some cases auditors can fail to recognize – or intentionally ignore – misleading data within a company’s financial statements, leading to negative outcomes for lenders and investors. This report will discuss the Enron scandal in which the auditing firm Arthur Andersen LLP turned a blind eye to the fraudulent actions of Enron Corporation, leading to the downfall of both companies and great harm to thousands of stakeholders.
Enron was founded in 1985 through the merger of Houston Natural Gas and Internorth (a natural gas company based in Nebraska). Enron quickly became the major energy and petrochemical commodities trader under the leadership of its chairman Kenneth Lay. Enron moved its operations online, boasting the largest online trading exchange in 1999, as one of the key market makers in natural gas, electricity, crude oil, petrochemicals and plastics. Enron also diversified into various businesses such as coal, shipping, steel & metals, pulp & paper, and even into such commodities as weather and credit derivatives. Enron was reporting revenues of $80 billion and profits of $1 billion at its peak. It was selected by Fortune as America’s most innovative company for six consecutive years.
Ethics is something that is very important to have especially in the business world. Ethics is the unwritten laws or rules defined by human nature; ethics is something people encounter as a child learning the differences between right and wrong. In 2001, Enron was the fifth largest company on the Fortune 500. Enron was also the market leader in energy production, distribution, and trading. However, Enron's unethical accounting practices have left the company in joint chapter 11 bankruptcy. This bankruptcy has caused many problems among many individuals. Enron's employees and retirees are suffering because of the bankruptcy. Wall Street and investors have taken a major downturn do to the company's unethical practices. Enron's competitors
In order to ensure that you are running a company that is bound to be wealthy and successful, following a strong code of ethics with positive ethical values is an undeniable necessity. A code of ethics is a document that typically outlines the mission and values of the business or organization. It is a written set of guidelines issued to its employees to help them conduct their actions in accordance with its ethical values (Schatzel, 139). Included in this code of ethics document is an introductory statement, a set of ethical principles, and particular methods for reporting issues and enforcing those established guidelines.
how losses could be at least limited if, in Enron last days, the survival strategy
Enron’s bankruptcy begins in November 2001 establish the found of an extraordinary wave of corporate scandals. The collapse of Enron is due to the unethical practices of its executives members. So many people would be asked question such as why do the top leaders CEO has failure to show moral behavior in business ethics. Hence, it is important to study ethics to improve look on top leaders in business. Therefore, it is important to define the various ethics which can be applied in this essay. First, deontology theory emphasize the important of duty to be followed regardless the cause of the action. Second, virtue ethics emphasize the importance of acquiring good character through self-cultivation and education. Utilitarianism highlight we
We have analyzed the characteristics of this fraud case, its consequences, and the events following Enron’s collapse. This was the biggest ever business bankruptcy in the history of USA spotlighting corporate America’s greed and moral failings. It shows how greed of few leaders led to the fall of the company at the expense of so many stakeholders and led to destruction of wealth and injuring all who went for a ride along with it.