...Case 1.1- Enron Corporation 1) The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe were most responsible for that crisis. Briefly justify each of your choices. * Both the Securities and Exchange Commission and the Financial Accounting Standards Board had a hand in lack of the public’s confidence in the accounting profession. Due to the lack of regulation for SPEs at the time of Enron scandal, companies found it easy to exploit the “3 percent” loophole, which allowed them to avoid having to consolidate the SPEs balance sheets with their everyday operations. This, in turn, allowed companies to move liabilities off balance sheet without having to make too many disclosures. The lack of directive by the SEC and FASB made it acceptable for companies to report inflated gains on various misleading transactions. * Next, the audit firms that deviated from their fiduciary duty to their clients and the public contributed greatly to the crisis in the accounting profession. There is an inherent conflict of interest when a firm begins providing audit services and a wide range of consulting services; the firm loses its objectivity when it helps a client to pursue aggressive, irresponsible accounting tactics. In the Enron case, Andersen was complicit in the aggressive accounting schemes and nefarious financial reporting for its SPE transactions...
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...Synopsis Enron was believed to be the company to take over the world in the 1990’s. The company was growing at exponential rates that were unheard of at the time. It was ranked among the 7 top corporations in the world peaking at a net worth of $70 billion. The company’s overwhelming wealth and success gave birth to some overconfident and ultimately greedy people within the company. In the end, Enron fell due to falsification of financial records, reporting profits well in excess of the actual. “On Dec. 2, 2001, Enron declared bankruptcy. Thousands of people were thrown out of work, and thousands of investors -- including most of the company's employees -- lost billions of dollars as Enron's shares shrank to penny-stock levels (http://www.npr.org/news/specials/enron/).” Enron is considered to be the largest corporate fallout in US history. The overconfidence of executive leaders, falsification and manipulation of financial statements, and Andersen’s hidings of the true audit findings, eventually led to the demise of this innovative corporation. Questions 1. The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe are the most responsible for that crisis. Briefly justify each of your choices. Executive management of Enron- When misstatements and irregularities emerged and were made clear to the public, the executives of Enron lost the confidence of the...
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...Licensed to: iChapters User CASE 1.1 Enron Corporation John and Mary Andersen immigrated to the United States from their native Norway in 1881. The young couple made their way to the small farming community of Plano, Illinois, some 40 miles southwest of downtown Chicago. Over the previous few decades, hundreds of Norwegian families had settled in Plano and surrounding communities. In fact, the aptly named Norway, Illinois, was located just a few miles away from the couple’s new hometown. In 1885, Arthur Edward Andersen was born. From an early age, the Andersens’ son had a fascination with numbers. Little did his parents realize that Arthur’s interest in numbers would become the driving force in his life. Less than one century after he was born, an accounting firm bearing Arthur Andersen’s name would become the world’s largest professional services organization with more than 1,000 partners and operations in dozens of countries scattered across the globe. Think Straight, Talk Straight Discipline, honesty, and a strong work ethic were three key traits that John and Mary Andersen instilled in their son. The Andersens also constantly impressed upon him the importance of obtaining an education. Unfortunately, Arthur’s parents did not survive to help him achieve that goal. Orphaned by the time he was a young teenager, Andersen was forced to take a fulltime job as a mail clerk and attend night classes to work his way through high school. After graduating from high school,...
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...CASE 1.1 Enron Corporation John and Mary Andersen immigrated to the United States from their native Norway in 1881. The young couple made their way to the small farming community of Plano, Illinois, some 40 miles southwest of downtown Chicago. Over the previous few decades, hundreds of Norwegian families had settled in Plano and surrounding communities. In fact, the aptly named Norway, Illinois, was located just a few miles away from the couple’s new hometown. In 1885, Arthur Edward Andersen was born. From an early age, the Andersens’ son had a fascination with numbers. Little did his parents realize that Arthur’s interest in numbers would become the driving force in his life. Less than one century after he was born, an accounting firm bearing Arthur Andersen’s name would become the world’s largest professional services organization with more than 1,000 partners and operations in dozens of countries scattered across the globe. Think Straight, Talk Straight Discipline, honesty, and a strong work ethic were three key traits that John and Mary Andersen instilled in their son. The Andersens also constantly impressed upon him the importance of obtaining an education. Unfortunately, Arthur’s parents did not survive to help him achieve that goal. Orphaned by the time he was a young teenager, Andersen was forced to take a fulltime job as a mail clerk and attend night classes to work his way through high school. After graduating from high school, Andersen attended the University...
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...2nd Writing Assignment- Enron Case 1.1 Due 10/27/14 by 7:00 PM in week 9 folder on BB * Read the Enron Case #1.1 of the Knapp Contemporary Auditing book. Make sure that you have a complete understanding of the details of the case as the assignment will require you to have such an understanding to enable you to answer the questions. * Answer questions 1,2,3,4, and 7. Length of each answer will vary from 1-3 paragraphs depending on the question and the paper should be no more than 3-4 pages. Do not retype the question as part of the paper. Each response should be numbered, have an introductory sentence and a concluding sentence. * As noted in the course syllabus the paper should be double spaced, using proper margins (1 inch at top, bottom and sides) and a 12 point font. Pages should be numbered. * Ensure your responses to the questions are clear and concise. Review Chapters 4/5 of the May and May Effective Writing book. * To assist you with answering the questions you should research the topic. Some of the information needed to assist you with answering the questions can be found in your Arens Auditing Textbook. As you research and gather information please ensure that you do not plagiarize the work of someone else. This is grounds for failing the course. * DO NOT use slang terms and avoid the use of “like”. Informal writing is not acceptable. For example, DO NOT write the paper as if you are talking to me. You will receive a grade for the...
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...Module 1 National library of New Zealand Is accounting a profession? Ethics Failures in Corporate Financial Reporting The strategic accountant - best show business leadership Public practice: Firm of the future Briefly explain why you think that SMEs do not extensively rely on their external accountants for business advisory services. discuss at least four types of relationships and possible conflicts an accountant faces in performing the above roles How soft skills can boost your career Former Harris Scarfe officer jailed The Ford Pinto Nestle Milk Powder Exxon Oil Company Jacinta faces distress in the office what circumstances apply professional judgement Module 2 Accoutants,ethical issues and the corporate governance context apply the code's conceptual framework approach to explain threat to independence Arthur Andersen and auditor independence accountant no experience,what he should do to perform audit The cautionary tale of Jose L.Gomez contact or obtain professional clearance prior to accepting the appointment? fundraising for a charity,sole tax purposes,voilation of ethic? marketing professional services Explain why integrity is an essential attribute of the profession quality control, merger,not yet completed a review kitchen-tabling-Keith Purcell's earnestness Utilitarianism Does employer have a right to inquire your personal life-rights theory Cheating-the pressure on Pasquale Vialletta to succeed which stage of Kohlberg's of CMD best describes the decisionmaking behaviour...
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...Corporate Environment Gretchen Tyler Dr. Alfred C. Greenfield, Jr. Strayer University ACC 557 Financial Accounting July 20, 2013 In recent years, there have been many ethical accounting breeches in large corporations that ended up costing investors and employees of the corporations a lot of money. Enron was a major player in many breeches, and ultimately was one of the key players for the SEC creating new guidelines and punishments for fraudulent behavior, the Sarbanes-Oxley Act. As of today, with the SOX act put in place for almost 11 years, there are still corporate breeches, Chesapeake Energy, Wal-Mart, Green Mountain Coffee, and Groupon are among the most recent (Rogers, 2012). I believe the SOX act helped prevent a lot of accounting illegalities and helped to protect the shareholders, but ultimately the act is not strong enough or covers enough to prevent it all. While more accountability is definitely held with the CFO, and CEO of corporations, as well as with outside accounting teams, the SEC is not going forward with investigations regarding independent CPAs or accounting firms (Benston & Hartgraves, 2002). Chesapeake Energy is a clear example; the CEO had taken out $1.1 billion in loans funded by Chesapeake in return for stake in the company (Driver & Grow, 2012; McKenna, 2012). The SEC has rules against taking out loans for stocks, but because it does not mention any areas related to stake in the company, it falls in a grey area that cannot be prevented by...
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...THE COLLAPSE OF ENRON & THE INTRODUCTION OF THE SARBANES OXLEY ACT BY TREVOR GARRETT 02/25/2011 Abstract Enron Corporation was one of the largest energy trading, natural gas and Utilities Company in the world that was based in Huston, Texas. The downfall of Enron is one of the most infamous and shocking events in the financial world, and its reverberations were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading companies in the U.S and considered among top 10 admired corporations and most desired places to work at. Its revenues made up US $139 to $184 billion, assets equaled $62 to $82 billion, and the number of employees reached more than 30,000 people in 20 countries around the world. While on the surface it seemed like the perfect Corporation, internally it had highly decentralized financial control and decision-making structure, which made it practically impossible to get coherent and clear view on corporations' activities and operations. Enron manipulated its books and assets to help it report steady profit growth to Stock Exchanges and Credit-rating agencies. Investors generally are not willing to pay as much for the stock of a volatile trading operation, and this gave rise to manipulations. This paper briefly describes the legal and ethical breaches by Enron, the key factors and events that led to its collapse and the passing of the Sarbanes Oxley Act as a consequence of such a catastrophe. The paper also discusses the key components...
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...analyse the groupthink’s concerns in the collapse of Enron. The collapse of Enron is less than three months, which Enron from a very prosperous company to a bankrupt enterprise. The collapse of Enron is one of the most grievous business failures in United States. This disastrous business failure had causes a large number of employees lost their jobs and retirement savings. Groupthink leads groups to make faulty judgments. Groupthink occurs when a group make wrong decisions as the pressures of group lead to deterioration of “mental efficiency, reality testing, and moral judgment”. There are several symptoms of groupthink. The issues to be resolved for Enron are collective rationalization, stereotypes of out-group, illusion of invulnerability, deceit to increase shareholders’ investments and self-censorship. The causes of the case study are illusion of unanimity, self-appointed mindguards, complicated transactions, belief in inherent morality of the group and direct pressure in dissenters. The solutions to the case study are challenge the norms, discuss with trusted associates, forbid related-party transactions for the senior officers, monitor the power of CEO and assign the role of critical evaluator. When there are symptoms of groupthink, there must be solutions to prevent and solve. TABLE OF CONTENTS EXECUTIVE SUMMARY 1.0 INTRODUCTION 1.1 Purpose of the report 1.2 Company Background 2.0 SUMMARY OF THE CASE STUDY 3.0 GROUPTHINK 3.1 Definition of groupthink ...
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...Running Head: ORGANIZATIONAL READINESS Assessing Organizational Readiness [STUDENT NAME] [PROFESSOR NAME] [COURSE TITLE] [DATE] Introduction Enron was the majority owner of Dabhol, which was a large combined cycle power plant situated on the western coast of the Maharashtra state in India. The project of Dabhol power plants was commenced in 1992 and took a total of nine years to begin operations of the plant. The total project cost of Dabhol was 2.9 million dollars, with Enron owning 65 percent of the plant followed by, Bechtel Enterprises owning 10 percent, General Electric owning 10 percent, and the state of Maharashtra Electricity Board holding 15 percent. Enron asserted that the Dabhol power plant is the largest gas-fired power plant in the world producing 2, 184 megawatts of electricity. The plant ceased operations in June 2001 that had arisen from a payment[pic] and contract dispute between the owners of the plant and the state of Maharashtra government. The paper will analyze the critical success factors (CSFs) as applied to the various facts found in the case study in “Politic, Institutions and Project Finance: The Dabhol Power Project”. The paper will also attempt to determine the benefits of the project, organizational readiness, and risk culture of the company with facts stated in the case study. By analyzing the CSFs and other components project risk recommendations will be given after a thorough analysis of the criteria. Critical Success Factors...
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...to requirements, coherent organization, conciseness, clarity, grammar, and quality of presentation. For researching your answers, keep in mind that different rules may apply for nonpublic and public companies. SOX, SEC, and PCAOB rules apply to public companies. Links on the readings page may help you answer some of the questions. Use the new online AICPA Code of Professional Conduct that is linked on the readings page. There are 3 parts to this assignment. 1. (12 pts) Case 1.1 Enron Corporation (the high profile disaster that changed the face of auditing!) Watch the video Bigger Than Enron. Use this address to access the site outside of WTClass: http://vimeo.com/61053538 Read ENRON Ten Years Later: Lessons to Remember, CPA Journal http://viewer.zmags.com/publication/94edbcee#/94edbcee/18 a. After reading the case, watching the video, and reading the CPA Journal article, what do you believe were the three most significant contributors to the fall of Enron. What do you believe were the three most significant contributors to the fall of Andersen? One of the most significant contributors to Enron’s fall would have been the culture of the company itself. They were taught to cut throats and do whatever need to be done to make a profit. This was show when they would cut the...
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...Enron: Who's Accountable? Just four days before Enron disclosed a stunning $618 million loss for the third quarter—its first public disclosure of its financial woes—workers who audited the company's books for Arthur Andersen, the big accounting firm, received an extraordinary instruction from one of the company's lawyers. Congressional investigators tell Time that the Oct. 12 memo directed workers to destroy all audit material, except for the most basic "work papers." And that's what they did, over a period of several weeks. As a result, FBI investigators, congressional probers and workers suing the company for lost retirement savings will be denied thousands of e-mails and other electronic and paper files that could have helped illuminate the actions and motivations of Enron executives involved in what now is the biggest bankruptcy in U.S. history. Supervisors at Arthur Andersen repeatedly reminded their employees of the document-destruction memo in the weeks leading up to the first Security and Exchange Commission subpoenas that were issued on Nov. 8. And the firm declines to rule out the possibility that some destruction continued even after that date. Its workers had destroyed "a significant but undetermined number" of documents related to Enron, the accounting firm acknowledged in a terse public statement last Thursday. But it did not reveal that the destruction orders came in the Oct. 12 memo. Sources close to Arthur Andersen confirm the basic contents of the memo, but...
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...Enron Corporation (Case 1.1) Most of us work from rags to riches but this is not the case of the Enron Corporation. Instead of becoming the nation’s greatest company, Enron instead laid claim to being the largest corporate bankruptcy in the history. The greediness and egotism wiped out the honesty and integrity that should instill on the persons who were involved in this case. Arthur Edward Andersen built his firm, Arthur Andersen & Company, into one of the largest and most respected accounting firms in the world through his reputation for honesty and integrity. His motto was “Think straight, talk straight” and he insisted that his clients adopt that same attitude when preparing and issuing their periodic financial statements. Arthur Andersen’s auditing philosophy was not rule-based; instead he invoked a substance-over-form approach to auditing and accounting issues. He avidly believed that the primary role of the auditor was to ensure that clients reported fully and honestly to the public, regardless of the consequences for those clients. Ironically, Arthur Andersen & Co.’s dramatic fall from eminence resulted from its association with a client known for aggressive and innovative uses of “accounting gimmicks” to window dress its financial statements. Enron Corporation was the second largest client of the firm and was involved in large, complex transactions with hundreds of special purpose entities (SPEs) that it used to obscure its true financial condition and...
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...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 employed Skilling to handle the Enron Finance...
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...SEMESTER 2 2011 CPA 118 ETHICS AND GOVERNANCE CPA - ETHNIC SEMESTER 2 2011 MODULE 1 ACCOUNTING AND SOCIETY 1.05 1.05 Part A: Ineraction with society Depictions of A/cting Depiction Defeating depictions defeat Fig 1.1 new bean counter How to become professional? 3 aspects 1.06 Recruiting the best Beard(1994),Smith and Briggs(1999) and Simnik and Felton(2006) Friedman& Lyne(2001);Albrecht and Sack(2000);Coate et al.(2003) Jeacle: colourful accountant linked to corporate collapses 1.07 Moral agency Biddle(2006) Value creation - key to maintain high standards Moral agent - refer to individual making moral judgement for others Moral agent theory based on concept " act appropriotely and professionally" 1.08 Technical functions and social impact Understanding A/cting A/cting defination - Macquarie Dictionary - Technical practice - bookkeeping Not Prefect def - AAA(American A/cting Association) -communication skill… 1.09 Social impact of A/cting + impact - based on historic A/cting info professional capabilities - technical knowledge,soft skill & experience 1.10 Social impact example - A/cting and the GFC "mark-to market" Lonergan (2009) - if A/cting causative factor in GFC 2008/2009 1.11 Q 1.1 Logergan 'standard setters'slow reaction only cause GFC ? NO How wisdom come out? - experience /knowledge Distinguishing feature - building relevant wisdom over time Parker et al. (1989) - induce other behaviour Miller(1994) - intrinsically and inredeemable social impact IMPACT Macro level:...
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