...described his viewpoints for auditing and the approach he took with his clients. Since America did not have strictly based accounting rules, Anderson believed as long as clients fully reported their financial statements minor accounting errors were acceptable. Arthur Anderson & Company adopted this philosophy and applied it with their clients. Arthur Anderson being a shrewd entrepreneur knew his company had to focus on energy companies because of the high demand for electricity, oil, and gas such as Enron. Northern Natural Gas Company was formed in the 1930’s primarily focusing on providing natural gas to customers to heat their homes. As the company grew and invested into several different types of energy supply and gain control of 40,000-miles of natural gas pipelines and became the largest Natural gas company in the United States. As a result in 1986 Enron was formed with Kenneth Lay being the top executive of the newly created firm. Jeffery Skilling, who was a top subordinate to Lay, transformed Enron into an energy trading company. Enron now having complete domination of energy sources grew rapidly and did not follow proper accounting standards. Arthur Anderson & Company was responsible for auditing Enron financial statements and to provide the public with confidence that the company was growing as rapidly as Enron claimed. In reality, Enron was participating in fraudulent activities and Arthur Andersen & Company failed to prevent them from doing so. Although...
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...ENRON: QUESTIONABLE ACCOUNTING LEADS TO COLLAPSE CRYSTAL RUFF GLOBE UNIVERSITY ABSTRACT This paper summarizes the article listed in reference that reported on the demise of Enron and the contributing factors that led to the financial downfall of a great company. The roles of the corporate culture, Enron’s financial staff, and even the chief financial officer are all to blame for the events that lead to the finality of the company that resulted in bankruptcy. While Enron boasted about being “The World’s Leading Company”, it was anything but that. The corporate culture of a company is supposed to describe how the stakeholders and employees, think, feel, and act. If Enron’s financial record is example of that, then the company should change the banner that hangs in the lobby at headquarters. CEO Skilling instituted a “rank and yank” system that would weed out lower ranked employees every six months. . (L. Ferrell, O.C. Ferrell, & Fraedrich, 2011). This alone caused a competitive environment amongst the employees. While he hoped this would help people reach their full potential, it ended up being a breeding ground for unethical practices within the company walls. Rather than a culture that focused on integrity and increasing profits for stakeholders, Enron was soon overcome with arrogance and the executives’ needs to fill their own pockets. Ignoring the rules was quickly integrated for the pursuit of profits and happiness, or so they thought. Enron’s bankers...
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...Introduction Enron was a landmark case that taught the business world more about ethics. The company’s accounting procedures were not effective in keeping the company’s book accurate. By showing a high amount of cash flow and a low amount of debt, Enron looked great to investors, but in all reality the company was in trouble. A great example of Enron’s problematic accounting procedures is in 2000 when the company reported $3 billion in cash flows when it actually had negative $154 million. (Ferrell, Fraedrich, and Ferrell 487) Not only did Enron’s accounting procedures cause trouble within the company, but also the people that were in charge. Chief Executive Officer Jeffrey Skilling, put in a system where employees were rated every six months and the bottom 20 percent were fired. Shilling called the system, “rank and yank.” (Ferrell, Fraedrich, and Ferrell 487) This system held employees to a higher standard. It helped them reach their full potential no matter what they had to do to reach it, ethical or unethical. Similar to most scandals of this size, Enron was not the only company involved in the fraud. In their case, their law firm, banking partner, and auditors were all questioned for their role in the scandal. Our statement was “Enron’s bankers, auditors, and attorneys contributed to Background 2 After reading about the Enron case, our issue of whether or not “Enron’s bankers, auditors...
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...The "Enron scandal" and the fall of Al Capone had similar characteristics The "Enron Scandal means more than just a tale of accounting manipulation. It surpassed all other accounting frauds, because it was not just a matter of hiding losses, Enron led the pack of white collar crimes committed out of pure greed. The same could be said for Al Capone. In the 1930,s Frank J Wilson was the man who spearheaded the campaign to convict Al Capon of tax evasion. During prohibition Capone dominated the city of Chicago. He owned or controlled speakeasies, distilleries, brothels, gambling houses, nightclubs and horse and dog tracks. He eventually controlled politics throughout most of Illinois. It was Capon's greed for money and power that eventually brought him down just as it did Enron. A lot of the same techniques were used to achieve this. Attempts by local and federal law enforcement agencies to build a racketeering case against him went nowhere, mainly because he bribed investigators, fixed judges and juries and intimidated(or eliminated) witnesses. He was very clever at covering his tracks. Elliot Ness and his squad of “Untouchables” tried to destroy the Capone Crime Syndicate with brute force which did not work. J Edgar Hoover refused to participate in the investigation. Al Capon paid no income tax on his illegal income. Although Capone lived opulently and spent money lavishly, he never filed a tax return. To get Capone on income tax evasion, the government had to prove he had...
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...| The Function of Accounting Information Systems in the Enron and Bernard Madoff Fraud Cases | | | | | | | What is the definition of accounting information system? The Core Concepts of Accounting Information Systems textbook defines accounting information system “as a collection of data and processing procedures that creates needed information for its users” (Bagranoff, 2010). A key factor in determining the success in an organization is its accounting information system. It is the combination of the organization’s resources, such as its people, procedures, and business records that it (the organization) maintains to provide financial data. The basis of this case study is to disagree with the question of whether or not accounting information systems played a role in the Enron and Bernard Madoff fraud cases. All organizations should have an adequate, effective, and efficient accounting information system in tack. In my opinion, the Enron and Bernard Madoff fraud cases had the classic signs of pure greed; the accounting information systems were perhaps manipulated, ignored, and compromised to financially suit the personal gains of the individuals involved and did not assist with the cases. An important part of the accounting information system is its internal control system. Internal controls are methods and procedures used by an organization to safeguard assets, authorize transactions, and ensure accuracy of the accounting records. Enron’s demise...
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...Accounting 1370 Accounting Ethics Session 6 Governance, Accounting, and Auditing, Post-Enron Group 1: Student Name__Seven Autrey_____________________________________ Student Name__Duc Nguyen_____________________________________ Telling the Enron Story Name five ethical problems and the existing conditions that caused the Enron fiasco. Explain each. 1. Fiduciary Failure – the board of directors failed to safeguard the companies from many inappropriate practices. 2. High Risk Accounting – Enron allowed high risk accounting in that the partnerships with Chewco and LJM1 and LJM2 did not conform with accounting rules 3. Enron had extensive undisclosed off-the-books activity. There were billions of dollars in off-the-book assets and liabilities. 4. Excessive Compensation – There was a cash drain caused by the 2000 annual bonus and performance unit plan. 5. Lack of Independence – There were financial ties between Enron and board members. Arthur Anderson provided internal auditing services as well as consulting services. Accounting 1370 Accounting Ethics Session 6 Governance, Accounting, and Auditing, Post-Enron Group 1: Student Name__Carol Cates_____________________________________ Student Name__Brenda Bohm____________________________________ Telling the Enron Story Name five ethical problems and the existing conditions that caused the Enron fiasco. Explain each. 1. At Enron, a lack of integrity was built into the foundation...
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...------------------------------------------------- ENRON SCANDAL Enron’s Accounting Methods April 30, 2015 Acct 301-d02 LUO [Company address] April 30, 2015 Acct 301-d02 LUO [Company address] Melissa Vest Liberty University I. Introduction: Enron used many legal accounting practices to commit fraudulent accounting activities II. The genius, or ingenious, accounting methods Enron used: 1. Special purpose entities a. Synthetic leases b. FAS 140’s 2. Hedges 3. Share trust transactions 4. Minority interests 5. Prepays 6. Mark-to-market 7. Stock Games III. Conclusion: The beginning of the end Enron Scandal I have always tried to do the right thing, but where there was once great pride, now it’s gone. —From the suicide note of JOHN CLIFFORD BAXTER, Enron’s former vice chairman I. Enron used many legal accounting practices to commit fraudulent accounting activities: Enron was on the road to success when only a couple bad decisions were made that seemed to cause a panic that had them hiding and covering until the hole was too deep for them to climb out of. Was it optimism or cynicism that got Enron into the mess that ultimately destroyed it? II. The genius, or ingenious, accounting methods Enron used: “Enron executives applied for – and were subsequently granted – government deregulation. As a result of this declaration of deregulation, Enron executives were permitted to maintain agency over the earnings...
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...Enron Corporation was an American energy, commodities, and service company based in Houston, Texas. It was founded in 1985 as a merger between Houston Natural Gas and InterNorth. Enron eventually became one of the world’s largest electric, gas, and communications company. In 2000, the company’s annual revenue reached $100 billion. Enron was ranked as the seventh-largest company. Shortly after, Enron’s stock price would drop from $90 in August 2000 to $0.26 in November 2001. Enron was caught committing accounting fraud, now known as the Enron Scandal. The beginning of Enron’s fraud began in 1992 when Jeff Skilling, the president of Enron’s trading operations, convinced Federal regulators to allow Enron to use the “mark to market” accounting method. Mark to market is an accounting practice that involves recording the value of an asset to reflect its current market levels. Enron used mark to market accounting for contracts that had predictable future cash flow. “Use of this accounting method allowed Enron to take up front most of the anticipated profits on such contracts, and the requirements to write them down if their value diminished” (Enron- A Case Study, 2008). Enron could show significant profits and overstate its financial position. Enron had also misled the public into...
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...Enron Corporation: THE RISE AND FALL; ACCOUNTING SCANDAL Submitted To: Professor Bill Bristol Submitted By: Kenneth Rhodes, Jr. Metropolitan College of New York (MCNY) TABLE OF CONTENTS I. ABSTRACT...............................................................................................................................2 II. purpose and service....................................................................................................3 III. HistorY............................................................................................................................3-5 IV. The Downfall..............................................................................................................5-6 V. Accounting Scandal................................................................................................6-7 VI. Accounting Practices...........................................................................................7-8 VII. Files’ for Bankruptcy.............................................................................................9 VIII. Auditing.....................................................................................................................9-10 IX. Conclusion: THE AFTERMATH..........................................................................10-11 XI. BIBLIOGRAPHY................................................................................................................12 I. ABSTRACT ...
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...Global Perspectives on Accounting Education Volume 3, 2006, 27-48 ENRON AND ARTHUR ANDERSEN: THE CASE OF THE CROOKED E AND THE FALLEN A Gary M. Cunningham Visiting Professor Department of Business Administration Åbo Akademi University Turku, Finland Jean E. Harris Accounting Department Pennsylvania State University, Harrisburg Campus School of Business Administration Middletown, Pennsylvania USA ABSTRACT Outside the US, the failures of Enron and Arthur Andersen remain puzzles. How could the accounting and audit failures associated with Enron and Arthur Andersen happen in the US where auditing is sophisticated, accounting principles are strong, and disclosure is emphasized? This is a teaching case for persons outside the US to review the financial reporting and auditing issues related to Enron and to explain the regulation of accounting and auditing in the US. It has broad implications for corporate governance and accounting regulation in other countries as well. n the years after the Enron Corporation declared bankruptcy in 2001 and Arthur Andersen failed in 2002, people are still asking, especially those outside the US, how could this happen? What went wrong? The US has a well-developed set of Generally Accepted Accounting Principles (GAAP) that requires extensive disclosures in audited financial statements, and a well-established federal agency, the Securities and Exchange Commission (SEC) that monitors financial reporting. This case is written for accounting students and others...
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...The Rise and Collapse of Enron: Financial Innovation, Errors and Lessons Elisa S. Moncarz* Raúl Moncarz* Alejandra Cabello** Benjamin Moncarz*** Abstract Recent collapses of high profile business failures like Enron, Worldcom, Parmlat, and Tyco has been a subject of great debate among regulators, investors, government and academics in the recent past. Enron’s case was the greatest failure in the history of American capitalism and had a major impact on financial markets by causing significant losses to investors. Enron was a company ranked by Fortune as the most innovative company in the United States; it exemplified the transition from the production to the knowledge economy. Many lessons can we learn from its collapse. In this paper we present an analysis of the factors that contributed to Enron’s rise and failure, underlying the role that energy deregulation and manipulation of financial statements played on Enron’s demise. We summarize some lessons that can be learned in order to prevent another Enron and restore confidence in the financial markets, as well as in the accounting and auditing professions. Keywords: Enron, Corporate Ethics, Corporate Bankruptcy, Creative Accounting. Introduction T he rise and fall of high profile businesses like Enron, WorldCom, Parmlat and Tyco has been a subject of great debate and research among regulators, investors, government and academics in the recent years. Enron, for one, was the greatest failure *Professor-investigator...
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...management ignores or leaves to state laws to govern the code of ethics within a company. Companies have faced a lot of issues regarding ethical situations in modern times. Making ethical decisions in accounting is growing in complexity because of the larger number of stakeholders in business, and the greater responsibility on accountants. In the early 2000s many financial and accounting scandals went public in the media. As a result the practice of accounting in recent years has evolved drastically and greater accountability and consequences have been issued to corporations. In the United States authorities made many headlines with companies who practiced fraudulent activities, such as Enron, to serve as a warning to those who dare break rules in the future. The Organization Enron, According to (Eichenwald, 2006), was a U.S. energy-trading and utilities company that housed one of the largest accounting frauds in history. The company was based in Houston, Texas. Enron employed about 20,000 people and was the world’s largest natural gas, electricity, communications and pulp and paper company. As reported by Fortune.com, Enron had revenues of nearly $101 billion during year 2000. Fortune also named Enron “America’s Most Innovative Company” for six consecutive years. Accounting Ethical Breach Enron’s downfall, and the imprisonment of several of its leadership group, was one of the most shocking and widely reported ethics violations of all time as stated by (Silverstein, 2013)...
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...The Enron scandal • Enron, the 7th largest U.S. Company in 2001, filed for bankruptcy in December 2001. • Enron investors and retirees were left with worthless stock. • Enron was charged with securities fraud (fraudulent manipulation of publicly reported financial results, lying to SEC…) • Enron was a Houston-based natural gas pipeline company formed by merger in 1985. • By early 2001, Enron had morphed into the 7th largest U.S. Company, and the largest U.S. buyer/seller of natural gas and electricity. • Enron was heavily involved in energy brokering, electronic energy trading, global commodity and options trading, etc. • On October 16, 2001, in the first major public sign of trouble, Enron announces a huge third-quarter loss of $618 million. • On October 22, 2001, the Securities and Exchange Commission (SEC) begins an inquiry into Enron’s accounting practices. • On December 2, 2001, Enron files for bankruptcy. The Background Enron was founded as a pipeline company in Houston in 1985. Enron was a company that was able to profit by providing the delivery of gas to utility companies and businesses at the fair value market price. As the deregulation of electrical power markets arose, Enron with the help of former chairman Kenneth Lay decided to diversify their business portfolio and enter into becoming an energy broker who traded electricity and other commodities. Enron took what would prove be a fatal turn that would ultimately meet their demise...
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...Running Head: ENRON CORPORATION Enron Corporation July 20, 2011 Based in Houston, Texas, Enron Corporation was an American energy, commodities and service company. Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Enron employed approximately 22,000 employees and was one of the world’s leading electricity, natural gas communications, and pulp and paper companies before its demise in late 2001. For six consecutive years, Fortune named Enron "America's Most Innovative Company". At the end of 2001, it was discovered that Enron’s financial accounting reports had been falsified and the company had filed for bankruptcy. This substantial act was known as the "Enron scandal". The Enron scandal also lead to the creation of the Sarbanes-Oxley Act of 2002, a United States federal law enacted on July 30, 2002 to enforce firmer standards for management and accounting firms. Enron has since become a popular symbol of willful corporate fraud and corruption. Describe how Enron could have been structured differently to avoid such activities. Enron withheld essential financial and accounting information from the public and its shareholders. By law Enron was required to disclose their company financial dealings. Enron’s shareholders should have been informed about their financial and accounting transaction. Several shareholders were employees who had invested their life savings into this company. Instead of promoting within the...
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...STUDY:- Once the seventh largest company in America, Enron was formed in 1985 when InterNorth acquired Houston Natural Gas. The company branched into many non-energy-related fields over the next several years, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Although their core business remained in the transmission and distribution of power their phenomenal growth was occurring through their other interests. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. Then came the investigations into their complex network of off-shore partnerships and accounting practices The saga of the ENRON Corporation has been unfolding in the media for well over a year. In the span of only three years, ENRON has gone from public and professional acclaim of the company and its senior executives to scorn, infamy and bankruptcy. Its public auditing firm, Arthur Andersen, has basically been destroyed, as well as publicly disgraced. Tens of thousands of employees and investors have been emotionally and financially affected. Major financial services firms in banking, securities brokerage and insurance have been, and may yet be, drawn into the legal battles regarding who is to blame for the ENRON failure. Enron grew wealthy due largely to marketing, promoting power, and its high stock price. Enron was named "America's Most Innovative Company" by Fortune...
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