...EXECUTIVE SUMMARY This paper investigates about the Enron Corporation and Arthur Anderson. This assignment is to identify the background of Enron and Arthur Anderson and Enron fail. Other than that, identify the business risks that faced by Enron. Moreover, determine the responsibilities of board of directors and steps to improve corporate governance. Besides that, differentiated between rules-based accounting and principle-based accounting and the uses. In addition, there are discussion about auditor should allowed to provide non-audit services. There are also critical discussion on the reason audit partners struggle with making tough accounting decisions and a good recommendation of changes to be made. 1.0 Background of Enron Corporation and Arthur Anderson and fall Of Enron. 1.1 Background of Enron Corporation Enron was established in the middle of a recession in 1985, when Kenneth Lay CEO of Houston Natural Gas Company (HNG), persuaded a joining among Inter North Incorporate (Peterson). There was a young consultant named Jeffrey Skilling who had a background in banking organization (Peterson). He planned an innovative solution for Enron profit in the natural gas business (Sridharan, Dickes, & Caines). For instance, Enron buy natural gas from suppliers and sell to customers with the higher price (Sridharan, Dickes, & Caines). It is because the demand of natural gas increased (Peterson). Kenneth Lay was very impressed with Skilling’s new solution in 1990 and...
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...|[pic] | |Higher National Diploma in Business | |Assignment Front Cover Sheet | |Unit Title: |Tutor’s Name: | |Aspects of Contract and |D.K Hashani shashiprabha | |Negligence for Business | | |Assignment Title & Number: |Learning Outcomes Covered: |Assessment Criteria Covered: | | |Outcome1: | | | |Understand the essential |See the following “Notes to | | |elements of a valid contract |Students” the assessment | | |in a business context |criteria...
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...Ethics is the branch of study dealing with what is the proper course of life in human’s life or throughout society. It is the study of right and wrong in human endeavors. It is the value and pursue we categorize. It is regarding do we pursue for self interest or for the greater cause for society. One main culprit for Enron scandal was Arthur Anderson. It had served as Enron’s outside auditor since 1985. Not only did Anderson do external audits it also provided Enron internal auditing and consulting services. Anderson auditors helped Enron hides its earning manipulation. Arthur Anderson falsifying financial condition of the company and never disclosed it to the public. Anderson did all kinds of services for Enron such as external auditing, internal auditing and consulting services. This not only violates accounting services but because there are conflicts of interest among the services provided by Anderson. What we see from Enron case is that some people performed ethically and while others did not. Margaret Cecani who blew the whistle regarding the scandal Enron’s manipulation of the numbers in its finical report and the data. But, when we look at Kenneth lay the founder and the CEO of the company. Under his leadership he created a company with dishonest and lack of integrity among his employees and throughout company. Lay was not only caused investors to loose billions of dollars but he was also involved in fraud. One case was that telling his employees hard earned money...
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...ENRON Corporate Culture Q1: Analyse the corporate culture at Enron and its management’s behaviour. Include in your analysis, the normative theory of ethics which you would consider most relevant in driving the decision making at Enron. Enron began by merger of two Houston pipeline companies in 1985, although as a new company Enron faced a lot of financial difficulties in the starting years, though the company was able to survive these financial problems (Enron Ethics, 2010). In 1988 the deregulation of the electrical power markets came into action and flipped the company from up to down, after deregulation company business updated from delivering energy to becoming an energy broker and soon after this Enron once a company struggling to survive transformed to booming one. Deregulation opened the gates for Enron to step into the market and compete with the leading competitors in the market bringing buyers and sellers in to market together (Enron Ethics, 2010). . Enron earned a lot of money from the stock exchange by trading their own shares and earning profit from the difference in buying and selling prices. Deregulation gave permission to Enron to be creative, for the first time in history a firm that was required to operate within in the guidelines could be creative and test the limits the way they want. As time went by Enron’s products and services evolved, so did the culture of the company. In this newly deregulated and creative platform, Enron embraced...
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...Type of Submission: Case Problem “Hamilton County Judges” BUS 440 Quantitative Business Analyses Executive Summary Hamilton County Judges try thousands of cases per year. In an alarmingly large amount of these cases that are disposed, the verdict stands as rendered. Some of these cases are appealed and sometimes won or reversed. Using the resulted for 182,908 cases handled (disposed) by 38 judges in Common Pleas Court, Domestic Relations Court, and Municipal Court; Kristin DelGuzzi of the Cincinnati Enquirer conducted a study of these cases handled over a 3 year time period. Two of the judges, Dinkelacker and Hogan did not serve in the same court for the entire 3 year period. The purpose of the newspapers study was to evaluate the performance of these judges. Appeals are often caused by mistakes made by judges and the newspaper wanted to find out which judges were doing a good and bad jobs. Contents PROBLEM DEFINITION 5 MODEL VERIFICATION 14 OPTIMIZATION AND DECISION MAKING 15 MODEL COMMUNICATION TO MANAGEMENT 16 MODEL IMPLEMENTATION 16 Bibliography 17 PROBLEM DEFINITION Hamilton County Judges try thousands of cases per year. In an alarmingly large amount of these cases that are disposed, the verdict stands as rendered. Some of these cases are appealed and sometimes won or reversed. Using the resulted for 182,908 cases handled (disposed) by 38 judges in Common Pleas Court, Domestic Relations Court, and Municipal Court; Kristin DelGuzzi of the Cincinnati...
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...In, 1985 two gas pipeline decided to merge to form The Enron Corporation. Enron was once the seventh largest publicly-held corporation in the nation. The purpose of this case study is to first research how the corporate leaders at Enron, who are so smart, managed to display such poor judgment. Secondly, answer the question: What do you see as the contributing factors to the demise of corporate giants like Enron, World Com, TYCO, Arthur Andersen, and others? This case study will identify at least three, and explain how their poor judgment contributed to their demise. Also in this case study I will address the questions: What might possibly happen when a corporation is placed in an oversight role of a business partner? One example of this was Arthur Andersen serving as Enron's auditor. How might a corporation ensure that this does not happen? What risks are involved if an individual decides to blow the whistle on unethical behavior within their company or institution? Are they really protected by law? The corporate leaders at Enron although smart managed to make poor decisions first by falsely reporting net income and cash flow. “Enron claimed a net income of $979 million in that year, it earned $42 million” (Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2015). Enron could also be defined as a cooperation with an arrogant culture, which “Enron executives believed competitors had no chance against it” (Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2015). Enron had a belief that...
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...Mark-to-Market: The Fall of Enron John Smith State University Mark-to-Market: The Fall of Enron Enron was the face of business in the 1990’s. Rising to meteoric heights never seen before in the business world, to having just as epic of a fall. The core reason behind this meteoric rise and epic fall? Mark-to-Market (M2M) accounting principles. This paper will be presented in four sections. The first section defines and explains the term of M2M. The second section discusses the way M2M was used in the business environment before and after the Enron collapse. The third section focuses on the views of the current business environment on using M2M, both for and against its use. In the fourth and final section, the author gives their opinion on the practice of M2M, and if it is still a viable accounting principle. Mark-to-Market Defined In the private sector all accounting principles and standards are gathered together and organized by the Financial Accounting Standards Board (FASB). They are then put into what is called the FASB Codification. The FASB Codification (2015) defines M2M as a valuation method that uses current market prices and other useful information that is supplied by market exchanges between similar items such as assets, liabilities or a similar business (“FASB Codification,” 2015). Basically what this accounting principle does is use the fair value of the current market price to determine what an asset or liability is worth. Using traditional...
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...Assignment I: Tainted Baby Powder Milk 1. Yes, I believe there has been some damage to Baidu.com’s reputation because there was a significant stock price drop from $308 to $110. Stock price drops usually are the result of a lack of confidence by the stakeholders in the future performance of the company. Lack of confidence can often be attributed to actions by a company that are revealed to the stakeholders. 2. Future reputational damage could be reflected by a lack of confidence of the stakeholders. This lack of confidence could be measured in consumer behavior. Consumers could choose to buy goods elsewhere, so as not to risk their family’s health by potential tainting of products. This change in consumer behavior has been demonstrated many times when the media reports a fast food restaurant serving tainted beef, or even the drastic reduction in air travel immediately after the attack on the World Trade Center on Sept. 11, 2001. Even though, 9/11 was not the direct fault of an airline, consumers feared more attacks and therefore would not travel. This greatly affected profits and stock prices of the airline industry. 3. Baidu must prove to the stakeholders that it is reporting the issue fully and honestly. It is tempting for companies to withhold damaging information, but eventually it will come out and the deception is more damaging to the company many times than the truth ever would have been. The more transparent the company is in communicating the issues, the easier...
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...| A Report on Enron’s Fall – Case Study | Submitted to: Prof. Vivek Raina | Submitted by: Kunal Bhaia (M00116), Vidhi Pitroda (M00143), Nirali Mehta (M00144) & Harsh Desai (M00148) 10/14/2013 | Table of Contents 1. Summary 3 2. Q-13 3. Q-25 4. Q-36 5. Conclusion6 1. Introduction Enron was founded in 1985, and as one of the world's leading electricity, natural gas, communications and pulp and paper companies before it bankrupted in late 2001, its annual revenues rose from about $9 billion in 1995 to over $100 billion in 2000. Enron was the country's most innovative companies in the duration of 1990s. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses. Besides buying and selling gas and electricity futures, it created whole new markets for such commodities like coal, water, electricity, gas etc... At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. According to Thomas (2002), the drop of Enron's stock price from $90 per share in mid-2000 to less than $1 per share at the end of 2001, caused shareholders to lose nearly $11 billion. And Enron revised its financial statement for the previous five years and found that there was $586million in losses. Enron fall to bankruptcy on December 2, 2001. During this fraud...
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...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. Brief Time-Line of the Enron Scandal…Continued • 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. : Oct – Dec 2001 Regulatory Oversight of Enron Auditors Arthur Anderson Audit Committee (Directors) SEC Company Report Shareholders Enron Board of Directors Enron Investigative Findings 1993-2001: Enron used complex dubious energy trading schemes Example: “Death Star” Energy Trading Strategy • • Took advantage of a loophole in the market rules governing energy trading in California Enron would schedule electric power transmission on a congested line from bus A to bus B in the opposite direction to demand, thus...
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...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. Brief Time-Line of the Enron Scandal…Continued • 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. : Oct – Dec 2001 Regulatory Oversight of Enron SEC Auditors Arthur Anderson Audit Committee (Directors) Company Report Shareholders Enron Board of Directors Enron Investigative Findings 1993-2001: Enron used complex dubious energy trading schemes Example: “Death Star” Energy Trading Strategy Example: • Took advantage of a loophole in the market rules governing energy trading in California • Enron would schedule electric power transmission on a congested line...
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...Business Ethics and Corporate Responsibility Professor Dr. Dana Legette-Traylor Unit 5 Case Study Accounting for Enron By Accounting for Enron 1. Donald Duncan had responsibilities to everyone mentioned and he definitely failed by acting negligently and by showing a complete lack of ethics throughout his involvement with Enron. Due to the fact that Donald Duncan was the head auditor he had a responsibility to maintain the highest professional accounting and auditing ethics, and to lead his team morally as possible. When people are seeking wealth without thinking about who they hurt in the process they will continue to cheat and wait until there is no going back to correct the issue. Auditors were taught to maintain ethics and to be as unbiased as possible and to be very aware that fraud can present its self at any time. Duncan should have made sure that he provided the shareholders with a detail audit report that is accurate to ensure them that everything is okay or if something is needs attention. But Duncan in this case was deceiving the shareholders because his boss instructed him to do so for a very large amount of payment. When Duncan got rid of the documents he incriminated himself right away because he was trying to hide the evidence that he played a part in the scandal. 2. There is nothing wrong with aggressive tactics when it comes to accounting because companies can lose when this practice is unethical. A person can be as aggressive as possible so as...
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...advanced education with regard to employment that is considered to be prestigious (Laws.Com). Enron and its top leaders not only misrepresented earnings reports, but embezzled funds from its investors making this company’s scandal the most notorious business failure in history. Enron’s fraudulent business practices affected thousands of people, and the laws that were broken, along with the crimes that were attempted to be covered up in the end, led to the destruction of a business that people counted on. Companies file bankruptcy on a daily basis, but Enron had to file Chapter 11 due to the corrupt leaders the company had. With nearly $25 billion in assets, Enron’s bankruptcy is one the largest in corporate history, making it an interesting study for any business student (Edmonds). Chapter 11 Bankruptcy...
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...CASE STUDY – UNIT 1 1. Andrew Fastow is a key person responsible for the downfall of Enron. When he became the CFO in 1998, he came up with the plan to make the company appear in great shape by using the mark-to-market accounting practice. The company would build an asset, such as a power plant, and immediately claim the projected profit on its books, even though it hadn't made one dime from it. If the revenue from the power plant was less than the projected amount, instead of taking the loss, the company would then transfer these assets to an off-the-books corporation, where the loss would go unreported. This type of accounting created the attitude that the company did not need profits, and that, by using the mark-to-market method, Enron could basically write off any loss without hurting the company's bottom line (Seabury, 2014). SEC and FASB are also key. In the early 1990s, the SEC and FASB had wrestled with the controversial accounting and financial reporting issues of SPEs. There was intense debate but the SEC and FASB did not offer guidance or a solution. SEC and FASB were fully aware there was concern with this reporting but did not take it very seriously and let it slide by. Arthur Anderson is also a key. The auditors did work for Enron but they are also to guide the company in the right direction of financials. With the use of the SPEs and mark-to-market accounting, it was kind of a loophole in financial reporting. Since can report and not report assets and liabilities...
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...Overview of the SEC Primitive economies are basically barter economies (goods and services traded for other goods and services), while in other mature economies, businesses are organized into proprietorships, partnerships, and joint venture. These types of closely held businesses, in which owners manage their own business, do not need external reporting of the results of operations. However, external reports have become essential with the increase in the size and number of business enterprises, along with the increased amount of people investing capital resources in these businesses. The corporate form of business also increases the need for objective verification of data and creates a need for disclosure of more and better information to owners and potential investors. Furthermore, the increase in value, size and activity of capital exchange in security market also increases the opening of taking advantage in lax conditions and to profit by misrepresentation and manipulation. Hence, the main reason for establishing the securities legislation was because large security market requires operating procedures that would protect investors from fraud and guarantee an adequate supply of capital for economic growth. Background of the SEC The Securities and Exchange Commission (“SEC”) is one of several public and private sector rule-making organizations that have an effect on financial reporting for businesses. It plays a crucial role in the development...
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