...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 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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...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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...Enron Corporation case study • The Enron debacle created what one public official reported was a "crisis of confidence" on the part of the public in the accounting profession. Lists the parties who you believe are most responsible for the crisis. Briefly justify each of your choices. The debacle of Enron, a US firm is looked upon as the worst debacle and fall out in the history of US bankruptcy filed cases. There are many parties involved when it concern to Enron debacle, which was accorded to accounting instability and the compromising factor of accounting profession itself. Out of the many parties in the league and the major force behind the debacle of Enron concern Andersen's, the accounting and auditing firm that once deserved name in the industry for its conscience in accounting professional services and auditing. As the case relates to, accounting audit for Enron is attended by Andersen's since long enough. However, the interesting feature is that some compromise in the profession of accounting services by Andersen's was notable, given that there are noteworthy feature of stock manipulation, especially in financial statements of Enron attended and audited by Andersen's. The statement and restatement of Enron also gives some probable indication for manipulation of accounting, where debate and counter debate in that regard from the prying eye of the media was a common feature. Thus, the involvement of Andersen's in Enron consultancy and professional auditing makes it...
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...Michael C. Knapp Cases in Auditing , 2003 Ethics case enron corporation John and Mary Andersen immigrated to the United States from their native Nor-way in 1881. The young couple made their way to the small farming community of Piano, Illinois, some 40 miles southwest of downtown Chicago. Over the pre-vious few decades, hundreds of Norwegian families had settled in Piano and sur-rounding 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 An-dersen 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 op-erations 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 par-ents did not survive to help him achieve that goal. Orphaned by the time he was a young teenager, Andersen was forced to take a full-time job as a mail clerk and attend night classes to work his way through high school...
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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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...ENRON- A Study of FAILURES Who, How, Why! Arthur Gudikunst, Ph.D. Revised: April, 2003 Professor of Finance Finance Department Bryant College Introduction: 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. Overview of ENRON: The following timeline for ENRON is presented to set the major milestones for the company: July 1985- Houston Natural Gas merges with InterNorth to form ENRON, as an interstate natural gas pipeline company. Kenneth Lay is CEO. 1989- ENRON starts trading natural gas commodities and commodity derivative financial contracts. 1994- ENRON begins trading electricity as a commodity and related financial derivative contracts. Jeffrey Skilling is executive in charge of this new business venture. Nov. 1999- EnronOnline is launched as a web site for the global trading of energy commodities and derivative contracts. Jeffrey Skilling leads this continued transformation...
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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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...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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...Review of Accounting Ethics Dr. ACC 557: Financial Accounting May 22, 2013 Table of Contents 1.0 Corporate ethical breaches in recent times. 3 2.0 Accounting ethical breaches and their impacts 3 2.1 The Scandal of Enron 3 3.0 Organizational ethical issues and the management failure 5 4.0 Breach of the accounting practices and its impacts 5 5.0 Recommendations by the CFO 6 6.0 References 8 1.0 Corporate ethical breaches in recent times. Ethics is an important aspect of business in today’s enironment. Sometimes 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. According to Baker (2012) contrary to the popular belief of the recent global financial crisis resulting from failures of accounting ethics, he argues that there is not enough evidence to support this connection. 2.0 Accounting ethical breaches and its impacts Breaches of the accounting ethical policies have become a source of concern for the firms today. The proper application of IFRS and GAAP standards is vital for each firm. In recent years as more scandals have come into the spotlight firms have taken more and more internal measures in addition to the policy making at the governmental level to ensure breach of consumers’ trust and laws does not take place in the future. There has been a tremendous increase in the interest in accounting ethics (Cowton, 2013). 2.1 The Scandal of Enron The...
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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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...Ethical Issue In Enron Scandal The 2001 Enron Scandal gave business ethics a new leash on life. Enron and economic success story. It grown quickly and the board of directors was satisfied with management. However, the management was keeping 2 sets of book and hiding billions of dollars. Arthur Andersen, had been complicit in this deception and went down with Enron to business infamy. The Enron scandal exposed the weaknesses in the American way of doing business. (Johnson, 2002) One of the most important issue of the scandal was the fact that the board of directors seem uninterested in questioning management. Because profits and stock prices were going up, there was no real incentive to ask too many questions. The board viewed itself solely as the representative of the shareholders without any real obligation toward the general public or the employees of the firm. The big ethical issue is the role pf the board in controlling management. Management seeks to enrich itself while the board seeks to enrich itself while the board seeks to enrich its shareholders. After the scandal, the role of the board in overseeing management has been revaluated. (Johnson, 2002) In the Enron case, Arthur Anderson was also a consultant to Enron. This means that the auditors had an interest in the continued prosperity o (Johnson, 2002)f the firm and therefore, had no incentive to expose the fraudulent record books Enron kept. As long as the money...
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...Illinois in 1908 with a degree in accounting. At the age of 23, he was the youngest Certified Public Accountant in the state of Illinois. From 1907 to 1911 he served as the Senior Consultant for Price Waterhouse in Chicago. In 1913, Andersen decided to establish his own accounting firm. At the age of 28, he founded the public accounting firm of Andersen, DeLany & Company in Chicago. Licensed as accountants and auditors in many states across the country, the company grew rapidly during the 1920s. The firm opened six offices nationwide, the most important of which were located in New York (1921), Kansas City (1923), and Los Angeles (1926). During World War II Andersen himself reached the pinnacle of his success. After World War II, Andersen began training his associate, Leonard Spacek, for the company's leadership position. Spacek joined the company in 1928 and was named a partner in 1940, becoming one of Andersen's closest and most trusted confidants. Upon Andersen's death in January 1947, Spacek took over the company, remaining committed to the regimented management style of the founder. During Spacek's tenure, the firm grew from a regional operation located in Chicago with satellite offices across the United States into an international organization with one-stop, total service offices located around the world. Spacek began to focus on Andersen's idea that the company serve as the public role of the industry police. In the 1950s, the accounting profession was generally regarded...
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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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...& Refining, the predecessor of Exxon Mobil Corporation. He soon became the CEO and Chairman of Houston Natural Gas, which in 1985 merged with InterNorth. The newly formed company initially named itself HNG/InterNorth but soon renamed itself to Enron. In 1986, Lay became the CEO of Enron and slowly transformed the company into an energy-trading giant. During the time of merger, Enron was largest owner of inter and intrastate pipelines for transporting natural gas. With the help of government deregulation of prices of natural gas, Enron was able to sell its gas at higher prices, which significantly boosted its revenue. Enron pursued further growth by extending its natural gas business model to become a trader in electric power, coal, paper, pulp and water. By 2000, Enron has reached no. 7 on the Fortune 500 and claimed $101 billion in annual revenues. It had become a conglomerate that owned and traded all types of energy in financial markets. However among the success of Enron’s business strategy, were failed business attempts and unethical accounting approach to hide company’s debts. In 2001, Lay sold large amounts of Enron stocks while assuring its employees and shareholders that the company is in a great shape. After few months, Enron filed for bankruptcy in December 2001, the biggest in US history and over 20,000 employees lost their jobs, savings and pensions. In 2004, Lay was indicted for 11 counts of securities fraud, wire fraud, and making false and misleading statements...
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