In much of the business world from the past to today, we constantly are exposed to unethical behaviors and situations of conflict within the work environment. Thinking critically about a particular dilemma and whether or not it is ethically wrong takes time and critical thinking. The accountants of Enron could have avoided this situation by stepping in and explaining to their superiors the cost of the long-term consequences compared to the short-term benefits was not worth what they were putting out on the line. By analyzing the Enron scandal there will be a greater ability to know information that will help pin point any unethical behavior that an accountants may experience in their own work life. Justin Schultz, a corporate psychologist …show more content…
By doing this, it would raise their stock prices to look more profitable and desirable to shareholders. The first CEO of Enron was Kenneth Lay, who later resigned and was replaced by Jeffrey Skilling, although Lay stayed on the board of directors. Soon, Kenneth Lay found himself back into the CEO position when Skilling resigned less than a year after he took the position from Lay. The CFO of the corporation was Andrew Fastow, who would later find himself in the middle of this historic case. The accountant in charge of Enron’s financials was Arthur Andersen, who played a significant part in this as well. These men were critical to the operation that Enron was trying to hide from the public, and were very successful at doing so for some time. They were able to make it look like Enron was one of the most successful companies since the turn of the century (Investopedia).
In the early months of 2006, the trial began for Enron’s present and former CEO’s, Kenneth Lay and Jeffrey Skilling. They were both charged with a total of 29 criminal counts, including a conspiracy to hide the failing health of the company by selling a boosterish optimism to Wall Street and the public (NBC). This became a devastating blow to the guilty party who figured they would not be convicted of any crime, or at least only a minimal amount of something that could be paid off. In 2002, Arthur Andersen was convicted for shredding
This event was unprecedented. The seventh largest company in the United States disintegrated from an annually profitable company in business for over sixteen years to a company claiming to be bankrupt over a period of a few months (O’Leary). Ultimately, fraudulent accounting and misstatements of revenues and debt obligations orchestrated by the CEO, CFO, and other senior managers were to blame. These revelations roiled stakeholder trust in public companies' financial reporting, accounting methodology, and overall transparency. In addition to Enron’s admissions, their accountant and auditor, Arthur Andersen LLP, was determined to have conspired to assist in the inflation of stated profits mainly by not disclosing Enron's money-losing partnerships in the financial statements (PBS). Arthur Andersen eventually surrendered the practices’ CPA licenses in the United States after being found guilty of criminal charges relating to the firm's handling of auditing for Enron
The Security Exchange Commission found that The Enron corporations CEO’s and executives hindered the company’s research methods by using information to reveal how the top leaders of the organization assisted and supported the unethical behaviors in the accounting and finance departments. These acts deteriorated the integrity of excellence professionals, associates, and employees who were associated with the Enron Corporation. On behalf of the entire organization, the Enron Corporation’s poor business practices gross standards that pertain to unethical behavior.
Enron was a publicly traded energy company formed in 1985 by Kenneth Lay when Internorth acquired Houston Natural Gas; the company, based in Houston Texas, Enron (originally entitled “EnterOn”, but was later subjected to abbreviation), worked specifically in power, natural gas, and paper and even ventured into various non-energy-based fields as they expanded, including: Internet bandwidth, risk management, and weather derivatives. Several years after the founding of the company, Enron hired a man by the name of Jeffrey Skilling, a former chemical and energy consultant, who, upon promotion, created a team of high-level administrative employees who, by using special purpose entities, lackluster reporting of finances, and unethical accounting practices, hid billions of dollars of debt from unsuccessful arrangements and ventures from stock holders and the U.S. Securities and Exchange Commission. Enron executives achieved this scheme by using a controversial accounting method entitled “mark-to-market accounting,” which in essence, assigns value to financial commodities based on their projected market values; mark-to-market accounting is the opposite of cost-based accounting which records the price of a commodity at the purchase price. As a result of this new method, Enron’s worth skyrocketed to over $70 billion at one time, only to collapse miserably several years later—ultimately costing thousands upon thousands of people their jobs, pensions, and retirements. Enron’s employees
Enron Corporation was an American energy trading company who committed the largest audit fraud alongside Arthur Andersen and filed for one of the largest bankruptcies in history in 2001 after producing false numbers and committing fraud for years (“Enron’s Questionable Transactions” page 93). Enron failed to run an ethical business in multiple aspects. The executives of the company abused their powers by having board members not properly oversee its employees. Enron committed accounting malpractice by producing false financial reports to hide the debt from failed projects and deals. Using a mark-to-market accounting method, Enron would create assets and claim the projected profit for the books immediately even if the company had not made any profit yet. In order to hide its failures, rather than reporting their loss, they would transfer the loss to an off-the-books account, ultimately leading the loss to go unreported. Along with Enron hiding losses and creating false profit for the
Businesses, investors, creditors rely on accounting ethics. The accounting profession requires honesty, consistency with industry standards, and compliance with laws and regulations. The ethics increase the responsibility and integrity of accounting professionals, and public trust. The ethical requirements influence the management behavior and decision-making. The financial scandal of Enron and Arthur Anderson demonstrates the failure of fundamental ethical framework, such as off-balance sheet transactions, misrepresentation of financial statements, inaccurate disclosure, manipulations with earnings, etc. The confronted accounting profession and concern for ethics in businesses forced regulators to revise the conceptual framework of accounting processes.
Enron case makes us rethink the ethical aspects of business. Indeed, it is indisputable the idea of the need for transparent practice in companies. Managers, investors, and employees should have access to statements and balance sheets to be inside of all the information. Therefore, identifies, records, measures, and enables the analysis and prediction of economic events that changes the equity of a company. In the case analyzed, the documentary “The Smartest Guys in the Room”, one of the investors questioned why Enron did not make such disclosure.
Current curricula at most educational institutions teach students the financial implications of unethical acts, such as the risk of fines, penalties, lawsuits, and damaged reputations. It is true these actions negatively affect the firms bottom line but more importantly the students need to learn that unethical behavior can actually harm employees in tangible, nonmonetary ways. This harm can also propagate to the family and friends of the victim and other coworkers who whiteness these unethical behaviors such as bullying and discrimination. Business students are the future managers and directors of companies, therefore; it is crucial for them to recognize the physically and psychologically damage that unethical behavior in the workplace causes. Educators, have the ability, to help students to consider the financial implications of unethical acts, and the adverse effect on the profitability of the firm. Professors help students to put themselves in those workers’ shoes who are affected by bad behavior.
This paper explores the ethical dimension of the demise of Enron Corporation an reflection of author, placed in hypothetical situations. Accounting Fraud and Management philosophy will be the main discussion topics, along with the motivations of fraud. The fall of Enron can be directly attributed to a violation of ethical standards in business. This makes Enron unique in corporate history for the same actions that made Enron on of the fastest growing and most profitable corporations, at the turn of the 21st century, also bout about its destruction. This paper does not explore legal consequences, only the ethical dimension of Enron’s actions.
Enron was a U.S. based energy-trading company. At its height of operation in the early part of 2001, it was booking revenues of about $140 billion (Enron Ethics). At the end of 2001 it declared bankruptcy. The Enron bankruptcy was the largest corporate economic failure at that time, and still remains an example of how corrupt practices magnify in the long run. What led to Enron’s failure was primarily a lack of ethics, and poor accounting practices. This scandal was one of the reasons that new regulations were passed for financial reporting standards, the Sarbanes-Oxley Act was passed in 2002 as a means of stopping such a collapse in the future.
Arthur Andersen was once the eighth largest accounting firms in the United States who conducted auditing tax and consulting services to large corporations. Likewise, Arthur Andersen was also responsible for both Enron and Worldcom auditing processes and transactions during the corporate scandals. Prior to the Enron and Worldcom’s scandals, Arthur Andersen was a firm known for its trust, ethics, and integrity (Squires, 2003). In Andersen’s early years, their reputation gave them a competitive advantage in the market which also help them to attract new clients which resulted in continuously high profits. According to Squires (2003), Andersen leaded the way for accounting professions; he believed in putting the interests of the general public
On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for getting rid of the documents related to Enron’s accounting audit which resulted in the its scandal. The impact of the scandal combined with the criminal findings ultimately destroyed the Arthur Andersen LLP.
Ethical issues have greatly transformed in our lives since the great Enron, Xerox and other huge corporations proposed big profits showing earnings of billions of dollars and yet in reality facing bankruptcy. These corporations faced great trouble with the federals and state for manipulating financial statements. But not only corporations can be blamed on this, accounting firms were involved in this as much as the corporations were. With the business stand point, ethics comprises of principles and standards that guide behavior. Investors, traders, customers, and legal system determine whether a specific action is ethical or unethical. Ethical issue is a vast subject, but we will look at the niche
The Enron Corporation started in 1985 by Kenneth Lay and was the result of a merger between Houston Natural Gas and InterNorth Corporation (Madsen & Vance, 2009). Enron had the biggest gas transmission system in the U.S which consisted of a network of 38,000 miles of pipeline (Giroux, 2008). After the addition of Jeffrey Skilling, Enron transformed itself from a producer and distributor of natural gas to a trading company (Chandra, 2003). Enron lobbied hard for deregulation and was capable of being able to trade almost anything (Chandra, 2003).This idea required vast amounts of liquidity (Chandra, 2003). Enron’s revenue began to increase at a rapid speed (Chandra, 2003). Skilling developed a workforce that enabled the concealing of billions of dollars through the use of special purpose entities, fraudulent financial reporting, and accounting inadequacies (Giroux, 2008). Enron committed fraud over an extended period of time to manipulate earnings in order to maintain compensation of central executives. Despite the collapse of Enron, many executives were paid millions of dollars while other Enron workers were terminated and lost all of their retirement funds (Giroux, 2008). Enron has went down in history as not only being the biggest bankruptcy in U.S. for that time period, but also the largest audit failure (Giroux, 2008).
It was due to Ken’s ambition to turn the stable business from a pipeline company into an energy powerhouse (DiLallo, 2015) and the reported “error of judgment” in the handling of the debt in the overstatement of profits when there had been substantial losses between 1997 and 2000 by the company’s chief auditor Andersen (Enron: The Real Scandal, 2002), that Enron accrued its overwhelming debt, one that was not accurately reported, and, later, it lead to the company filing Chapter 11. Enron’s debt was not only caused by the ambitious desire for growth and corporate dominance in the arena of energy (DiLallo, 2015), but also because the top 140 top executives received $618 million total salaries in 2001 alone (Enron Fast Facts, 2015). Two of the major players, Jeffrey Skilling, CEO, and Ken Lay, CEO from 1985 to 2000 and then again in 2001 after Skilling resigned, reportedly received $41.8 million and $67.4 million respectively according to 2015 Enron Fast Facts.
On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for shredding documents related to Enron’s audit which resulted in the Enron scandal. The impact of the scandal combined with the findings of criminal complicity ultimately destroyed the Arthur Andersen LLP. The company was accused of destroying thousands of Enron documents that included not only physical documents, but also computer files and Email files. By giving it the role of consultant along with their original role as external auditors, Enron made Arthur Andersen LLP a key player in Enron auditing.