The Ethics Of The Enron Case

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.)

The top managers operated in a corrupted fashion They did not even try to produce a positive symbolic management within the organization. Thus, the failure of the company was also the reflection of their moral failing. As a matter of fact, not only there was an aggressive and arrogant culture, but managers were mainly driven by corruption, and greed. They had no space for ethics; their main goal was trading for financial gains. Managers at Enron did not focus on long term goals. Moreover, they did not take care of their shareholders. Executives had neither an open relationship nor a shared vision with their employees. Instead, they were only interested in enriching themselves; according to their philosophy any situation could bring profits, even though this might involve crossing ethical lines. Indeed, the culture of pride, arrogance and greed at Enron made executives look for whichever solution in order to get more and more profits. Because executives wanted to benefit themselves first, all the decisions they took in the board room were made on the only account of how they could earn more. For all the above-mentioned reasons, operational and financial controls were inadequate,

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).

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 Enron case is well known for being the largest corporate bankruptcy in American history. Thousands of people world-wide lost billions of dollars, lost life savings, and lost their jobs. Due to the vast corruption, greed and the blatant disregard for integrity from the very top of Enron leadership, world markets crumbled and investor confidence in corporate America was severely damaged (Chandra, 2003.)

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.

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 Corporation, an oil later turned energy company, was founded in 1985. It quickly rose to the top, even being named Forbes Top Fortune 500 Company 6 years in a row. Despite small hiccups in its history, it pushed on, which some would account to its executives such as Kenneth Lay, Jeffrey Skillings, and more. In 2000, its stock was rising by three to four hundred percent. Suddenly, Enron declared bankruptcy in December of 2001, which shocked people everywhere. Accounting fraud and unethical business ethics committed by the company were surfacing and thousands of people were losing their jobs and benefits. The route of Enron’s downfall was not the fraud, but the lack of moral compass within the founders and executives of the company. By having the ability to push aside the guilt of hurting thousands of people, these men single-handedly ran this company into the ground.

It is no doubt that Arthur Andersen (AA, hereinafter), Enron’s auditing firm, have violated many laws and rules prior to and during the investigation. Thus, our group does not believe there is anything that could argue for them from an ethical point of view. From the case that we read, it is clear to everyone that AA’s senior level management knew most of the intentional misstatement in Enron’s financials, yet they still issued an audit report that does not include any of the information. Furthermore, when SEC initiated the investigation over Enron, instead of cooperating with the SEC and turn in the evidence of fraud, AA’s Enron auditors shredded thousands of pages of evidence, made the entire process much harder for SEC. Both actions are alterations of the general public’s interests, and thus, are unethical.

“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

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

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.

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.

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.