...response to a number of corporate accounting scandals that occurred between 2000-2002 (Peavler, n.d). This act set new standards for public accounting firms, corporate management, and corporate boards of directors. Sarbanes-Oxley, or SOX, is a federal law that is the most comprehensive reform of business practices since Franklin D. Roosevelt was President of the U.S. and passed the New Deal. What caused the need for the Sarbanes-Oxley Legislation? The Enron scandal was certainly enough to show the American public and its representatives in Congress that new compliance standards for public accounting and auditing had to be put into place. Enron was one of the biggest and, it was thought, one of the most financially sound companies in the U.S. Enron was perhaps the catalyst for the Sarbanes-Oxley legislation. Enron stands for the greatest company scandal in the history of the US economy and has become a symbol of corruption for the whole Western economic system. In 2001, the nation was rocked by the collapse of Enron, a multibillion dollar corporation that employed thousands of people and had affiliations right up to and including The White House itself. Amid the financial chaos and destroyed lives and reputations the collapse left in its wake, questions arose concerning exactly how the catastrophe occurred, why it occurred, and who was involved (Raver, 2006). Enron purchased and sold gas and oil futures. It built oil refineries and power plants. Enron became one of the world’s...
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...are important and involves money opens doors for unethical practice and behavior. In the past years companies like Enron and WorldCom have been scandalize for its company’s unethical conduct in accounting. In the wake of numerous corporate scandals the Sarbanes-Oxley Act (SOX) of 2002 was created to protect investors by improving the reliability and accuracy of corporates disclosure made pursuant to the securities laws, and for other purposes. Although many companies run their business honestly, others turn out to be criminals, robbing their customers’ qualm, or dragging themselves into illegal practices slowly through good intentions or ignorance. Companies may be tempted to practice unethical behavior in accounting for different reasons such as greed, opportunity, disconnection, and ignorance. Unethical practices and behaviors also include: manipulation of financial, bribery, insider trade, misuse of funds, exaggerating the value of corporate assets, exaggerating revenue, securities fraud, purposely providing erroneous information relating to expenses, and kickbacks, purposely providing erroneous information relating to liabilities, and manipulation of the financial markets. The paragraph below provides examples of two of the most discussed company involved in the U.S accounting scandal. Since the early 80s the United States have been rocked by accounting scandals that forced the U.S. government to increase regulations. In late...
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...Enron Ponzi Scheme Enron Ponzi Scheme The Enron scandal was a corporate scandal that involved the American energy giant Enron Company based in Houston, Texas and the auditing and accountancy-consulting firm Arthur Andersen. The scandal was uncovered in October 2001. Enron Corporation was undoubtedly a giant corporation and in fact, some individuals suggest that it was one of the largest energy companies’ world over. It comprised of a multibillion corporation that employed several individuals and had various affiliations right to the White House. Enron majorly depended on external sources of credit to finance its operations (Loren, 2003). In 2001, the corporation collapsed leaving in its wake financial chaos and financially ruined lives and families. It emerged that the Enron Corporation’s remarkable financial condition thrived on institutionalized, systemic and intricately planned accounting fraud that was later to be referred to as the “Enron scandal”. From that instance, Enron has continued to become a very popular symbol and example of willfully orchestrated corruption. The collapse of Enron Corporation destroyed lives and shattered reputations, questions have been raised on how the fraudulent transactions occurred and who was involved. In this paper, all these questions will be investigated explicitly. The paper will also focus on the various ways in which the Enron debacle created an awareness of corporate ethics within the United States (Peter & Ross, 2002). Enron...
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...Introduction: Widely known as the champion of the energy industry, Enron is suddenly faced with a corporate crisis in the form of a scandal. This scandal involves not only Enron’s accounting practices but also its corporate governance and culture (Lawrence & Weber, 2008). This report will recommend some potential strategies for Enron to move forward from the scandal. To do this, we must incorporate stakeholder theory, which “argues that corporations serve a broad public purpose; to create value for society” (Lawrence & Weber, 2014, p 6.). This means that Enron must take responsibility for the scandal it created and take actions to regain its stakeholders’ confidence. To accomplish this, we will first identify and analyze Enron’s primary stakeholders, and then point out the key problems along with possible solutions. Finally, we will end the analysis with the best solutions that Enron should enact. Primary Stakeholders: The three most salient stakeholders are Enron’s shareholders, employees, and the government. We choose these three based on their interests, power, relevance, likelihood to form coalitions, and also due to the legitimacy and urgency of their claims. The first important stakeholder is none other than Enron’s shareholders. The owners of Enron invested their money relying on Enron’s false financial statements, only to lose billions of dollars. They are likely to form coalitions and engage in shareholder activism. In fact, they have the legal power to...
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...Dawn Boucher ACC-411 Auditing Principles March 09, 2014 Enron: The Smartest Guys in the Room Enron was the seventh largest company in the U.S. and many viewed it as a company that simply could not fail. Enron was founded in 1985 when Kenneth Lay merged two companies together and by 1992 it was the largest seller of natural gas in North America. Between the 1990’s and the early 2000’s Enron’s stock had risen 311% making it the most innovative large company in America in Fortune’s Most Admired Companies. Enron was able to become seemingly so successful by owning and operating a variety of companies such as paper plants, gas pipelines, electricity plants, and broadband services. Two years after it was founded Enron found itself in the midst of a scandal when the current CEO, Louis Borget, was discovered to be diverting the company’s money to offshore accounts with which it is alleged that Ken Lay was aware of but when auditors started to question the company’s financials Lay denied having any knowledge. After Borget’s departure, Ken Lay hires Jeffrey Skilling as the new CEO and he immediately begins to change the way Enron handles its accounting practices. Skilling insisted they used mark-to-market accounting which allows the company to book potential profits on projects regardless of when they are actually earned. Enron continued to report huge profits until an investor and a reporter began to question the executives about some irregularities in the financial statements...
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...Lessons from the Enron Scandal On March 5, 2002, Kirk Hanson, executive director of the Markkula Center for Applied Ethics, was interviewed about Enron by Atsushi Nakayama, a reporter for the Japanese newspaper Nikkei. Their Q & A appears below: Nakayama: What do you think are the most important lessons to be learned from the Enron scandal? Hanson: The Enron scandal is the most significant corporate collapse in the United States since the failure of many savings and loan banks during the 1980s. This scandal demonstrates the need for significant reforms in accounting and corporate governance in the United States, as well as for a close look at the ethical quality of the culture of business generally and of business corporations in the United States. N: Why did this happen? H: There are many causes of the Enron collapse. Among them are the conflict of interest between the two roles played by Arthur Andersen, as auditor but also as consultant to Enron; the lack of attention shown by members of the Enron board of directors to the off-books financial entities with which Enron did business; and the lack of truthfulness by management about the health of the company and its business operations. In some ways, the culture of Enron was the primary cause of the collapse. The senior executives believed Enron had to be the best at everything it did and that they had to protect their reputations and their compensation as the most successful executives in the U.S. When some of their...
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...Kayley Stasiewski 12/6/2015 Auditing Principles Enron: The Smartest Guys in the Room From being the nation’s seventh largest corporation once valued at 65 billion dollars, Enron filed for bankruptcy in less than a year of cooking their books. It was very unconventional for a wealthy company to go from almost 70 billion dollars to zero dollars in so little of time. This scheming corporation is what was called “a house of cards”. In other words, their profits were a result of gambling with the shareholders’ money. Quoted from the film, "Oil trading is like gambling, sometimes you win, sometimes you lose. But Enron oil always seemed to win”. This scandal was noted in the film as “arguably the most shocking example of corporate corruption”. Enron’s cost strategy was considered “mark to market accounting”. They decided what they wanted to list their profits at. Avoiding to reveal their thirty billion dollars worth of debt to the shareholders and public, Enron kept the stock price high to continue the in flow of cash. To cover up the debt, Enron falsely created companies to show a movement of money. In reality, there was no true movement of money, it was all a scandal. The only movement of money ever was into their personal bank accounts. We can put most of the blame on the Chair and CEO Kenneth Lay and the COO Jeff Skilling. These men and their workers successfully deregulated California’s electricity market once they merged with Portland General Electric. The people...
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...and Scandalous fall of the Enron Corporation. Enron Corporation was an American energy, commodities and service company based in Houston, Texas. Before its bankruptcy in December 2, 2001, Enron employed more than 20,000 employees and was one of world’s major electricity, natural gas, communications and pulp and paper company with claimed revenues of nearly $111 Billion during the year 2000. In 1985 Kenneth Lay (the founder of Enron Corporation) merged the natural gas pipeline companies of Houston Natural gas and Internorth to form Enron. Enron was named by the Fortune magazine as ‘America’s Most Innovative Company’ for six consecutive years. Enron became the largest seller of natural gas in North America by 1992, its trading of gas contracts earned $122 Million (before interest and taxes) the second largest contributor to the company’s net income. The company’s founder Kenneth Lay helped to initiate the selling of electricity at market prices, and soon after the United States Congress approved legislation deregulating the sale of natural gas. The resulting markets made it possible for traders such as Enron to sell energy at higher prices, which significantly increased its revenue. In an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants and broadband services across the globe. The downfall of Enron Corporation began with its...
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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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...The Ethics of Enron: A Corporate Disaster Racheal D. Smith Salem International University The Ethics of Enron: A Corporate Disaster Ethics, as stated by Dawn D. Bennett-Alexander and Linda F. Harrison in The Legal, Ethical & Regulatory Environment of Business in a Diverse Society, are considered subjective laws as well as a how-to-guide for businesses in how they conduct themselves with their suppliers, customers, employees, and anyone else they do business with (2012). It is not enough to know how to run and conduct business, it is also important that good judgment, situational experience and common sense be used in order to be successful and remain that way. There have been companies in the past who have not exercised good ethics and have paid the price for their folly. It was not only the CEO’s and the upper echelon who suffered, though they may have received the brunt of it, but also those employed by the company. This is true in the case of Enron. Enron was a company who “marketed electricity and natural gas, delivered energy and other physical commodities, and provided financial and risk management services to customers around the world (Enron Fast Facts, 2015).” Enron was formed in July of 1995, after the merger between Houston Natural Gas and InterNorth out of Omaha with the help of Kenneth Lay and became the sixth largest company in the world that provided energy (Enron Fast Facts, 2015). It was due to Ken’s ambition to turn the stable business from...
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...practices since the time of Franklin Delano Roosevelt. This new law sends very clear messages that all concerned must heed. This law says to every dishonest corporate leader: you will be exposed and punished; the era of low standards and false profits is over; no boardroom in America is above or beyond the law”- George W. Bush | | INTRODUCTION Since the initial separation of corporate ownership from corporate management, the abuse of power by management has been a concern. Early in the last century a small number of Industrialists owned and controlled the major corporations. Slowly, as these individuals aged and retired, their vast holdings were transferred to a large number of decedents who were, for the most part, disinterested in managing the firms in which they held an ownership share. The shareholders relied on experienced managers to direct their corporations. This transfer of power gave rise to agency problems wherein the agent of the organization (manager) is likely to place their own interest above those of the actual owners of the firm. There is a vast body of literature addressing the issues of agency problems and clearly defined Agency Theory to which the majority of scholars subscribe (Van Ness, Miesing, and Kang, 2009) The original attempt to create an antidote to agency problems was the formation of corporate boards of directors (Van Ness and Seifert, 2007). These directors were given the legal authority to oversee executive decision-making and strategic actions...
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...the past 20 years with current corporate scandals. Details This is a group assignment of three students, you need to form your own group and register yourself in a group on the RMIT Blackboard by the end of topic 3. A detailed marking rubric is provided. Word limit: 3,500 words (not including references, bibliography). Make sure that you attach a signed cover sheet and the originality report from Turnitin to your assignment together with your group member names, your lecturer's name and tutorial time clearly written. Only one report per group is to be submitted. Assignment- Part One Due date: Friday TBA 2014 at 5.00pm. Marks available: 20 marks Select three corporate scandals listed below and prepare a report suitable for submission to a board of directors that discusses: a. the facts relating to the corporate scandal and how the scandal occurred. Identify any similarities between the three scandals (3 marks); b. the stakeholders involved in the scandal with explanations of how they were affected by the scandal (3 marks); c. the ethical, legal, accounting and/or corporate governance issues involved in the scandal including how the issues were able to occur. Identify any similarities between the three scandals (6 marks); d. a comparison between Enron and each of the corporate scandals you have selected, identifying any similarities or differences between the corporate scandals and Enron (8 marks); and e...
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...collapse of Enron impacted many individuals and organizations throughout the world. The extent and severity of each depends on the situation. But one common factor is that all impacts were proven to be negative. Although, it was one of the greatest corporate learning experiences for the entire world. Enron was at its peak in 2000 with stock prices around $90.00 a share. As the company failed, stock prices plummeted to a mere $.67 a share. The company’s thousands of employees had invested their life savings and retirement accounts into the once promising shares. As the company failed, the executives secretly sold off their stock and continued to alter the books. The helpless employees had no choice but to sit back and watch everything they worked for disappear. The employees were left with a life of uncertainty and instability. They were now unemployed and left with an empty bank account. Most would never recover a dime if it wasn’t for the reduction of Jeff Skilling’s sentence in 2013. Skilling’s estimated worth over $40 million. The accounts have been frozen since his arrest and under this new settlement; the prison sentence would be reduced if the $40 million is distributed to those that lost everything when Enron collapsed. The severity of this case has lead to several safeguards being put in place. The Sarbanes-Oxley Act was passed in 2002 as a result of this scandal. The act consists of 11 different parts. The most important were created as a result of the accounting...
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...ethical problems based on your understanding of ethical theories and prior research. • Apply the relevant ethical theories to business problems. • Analyse ethical issues in accountancy and provide advice. • Effectively communicate an ethical decision to a member of the profession. Assignment Select three of the recent corporate scandals listed below and prepare a report suitable for submission to a board of directors that discusses: a. the facts relating to each of the corporate scandals and how the scandal occurred. Identify any similarities between the three scandals. (3 marks); b. the stakeholders involved in the scandals with explanations of how they were affected by the scandal (4 marks); c. the ethical, legal, accounting and corporate governance issues involved in the scandal including how the issues were able to occur. Identify any similarities between the three scandals. (12 marks); d. a comparison between Enron and each of the recent corporate scandals you have selected, identifying any similarities or differences between the recent corporate scandal and Enron (5 marks); and e. Improvements and...
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...Business Failure: ENRON LDR 531 Organizational Leadership December 5, 2011 . Examining a Business Failure Effective managers and leaders contribute to the organizational success of an organization. Companies lacking strong managerial leaders failing to enforce the ethical code of conduct of an organization are prone to organizational failure. Yukl (2006), states, “One viewpoint is that leadership occurs only when people are influenced to do what is ethical and beneficial for the organization and themselves” (p. 4-5). The notorious Enron scandal created a historic impact to the organizational culture and processes of businesses in the United States. The following paragraphs will address organizational behavior theories, which could have predicted Enron’s failure. Furthermore, a comparison of management, leadership, and organizational structures is scrutinized to determine the influence each had on Enron’s failure. Who was ENRON? Enron was founded in 1985 when Kenneth Lay merged Houston Natural Gas and InterNorth creating Enron (CBCNews, 2006). In the early 1990s Kenneth Lay commenced the sale of electricity at reasonable prices. However, Congress deregulated sales of natural gas. As a result, Enron’s earnings increased and became the largest retailer of natural gas. To expand, Enron diversified and incorporated gas pipelines, pulp and paper, broadband services, water, and electricity plants. Furthermore, the deregulation allowed Enron executives full control...
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