...Enron: The Fall Of A Wall Street Darling Read more: http://www.investopedia.com/articles/stocks/09/enron-collapse.asp?partner=basics120111#ixzz1fiw28U4O Enron is a company that reached dramatic heights, only to face a dizzying collapse. The story ends with the bankruptcy of one of America's largest corporations. Enron's collapse affected the lives of thousands of employees, many pension funds and shook Wall Street to its very core. To this day, many wonder how a company so big and so powerful disappeared almost overnight. How did it manage to fool the regulators and the Wall Street community for so long, with fake off-the-books corporations? What is the overall lasting impact that Enron has had on the investment community and the country in general? Tutorial: Introduction To Accounting Collapse of a Wall Street Darling By the fall of 2000, Enron was starting to crumble under its own weight. CEO Jeffrey Skilling had a way of hiding the financial losses of the trading business and other operations of the company; it was called mark-to-market accounting. This is used in the trading of securities, when you determine what the actual value of the security is at the moment. This can work well for securities, but it can be disastrous for other businesses. In Enron's case, 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...
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...Discuss. The Lehman management openly violated the ethics code of business. For example they filed unverifiable, inaccurate financial reports openly contravening the Sarbanes-Oxley Act that states that companies should file correct and accurate financial documents. They also disregarded legit means of conducting business creating a culture where staff that practiced illegitimate means were idolized and rewarded thus encouraged to continue with their ways. In another case the management initiated a policy that reduced the health insurance of their staff showing openly that their main objective was profits. All this practices were extremely unethical openly encouraged by the top executives (Smith, 1997). 5. After all the public uproar over Enron and then the passage of the Sarbanes-Oxley Act to protect shareholders, why do you think we still...
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...Examining a Business Failure: The Downfall of Enron Team D: LDR/531 2012 Eric Heard In December of 2001, Enron was forced to file for bankruptcy after an investigation of their finances. This investigation uncovered a history of conspiracy, money laundering, and inside trading that led to one of the largest fraud scandals in history (Cernusca, 2011). As a result, businesses should examine exactly where this powerhouse faltered. The areas to be studied specifically are organizational structure, leadership, and management (Yuki, 2010). Once this is complete, business should learn from Enron's mistakes and be careful not repeat history. Organizational Structure's Part of the Enron Failure When looking at an organization, the structure which is defined as “how job tasks are formally divided, grouped, and coordinated” is important to fully understand the organization and how it can be an asset or in the case of Enron a failure (Robbins & Judge, 2011, p. 493). Since the fall of Enron people have studied the company to see what caused the failure. Due to Enron’s failure we have new legislation to help prevent some of the issues from happening again in other companies from the Sarbanes Oxley Act (SOX). One of the reasons for the act was the way Enron’s upper management ran the company. One key element to organizational structure is Centralization and Decentralization decision-making. This key aspect could be argued as the main...
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...Career Fair Mike Russell AIU Online Abstract Accurate accounting and the understanding can make or break your company or organization; not to mention possible jail time in the worse cases. The first way of ensuring accurate accounting is understanding the objectives. The second way is to understand the terminology of the accounting process and in the financial reporting aspects. The third way is to understand the ethics behind the accounting and reporting process. The forth way is to impement your role in the accounting process. Career Fair The primary objectives of accounting, basic terminology in the accounting process, the financial reporting, the ethics and the individual role each of us can play in the accounting process will be discussed in the following paragraphs. There are a multitude of things that happen at once but this will cover the basics for this career fair. Primary Objectives of Accounting There are a couple of ways businesses stay afloat by being financially stable and earning income. The process of financial information and conducting the financial record up keeping are vital to any organization, ensuring transparency of all information at the guidelines require you to prepare and produce them. The accounting cycle and the operating cycles are your intervals for reporting financial information. "This information is generally used by internal and external stakeholders to measure the organization's fiscal health" (M.U.S.E. Accounting Principles...
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...Memo of law Question/Issue Presented What evidence can be found during a legal discovery and how does this affect the record-keeping policy of a business organization? Applicable Law and Ethical Standards Newby v. Enron Corp. , 2002 U.S. Dist. LEXIS 28397 (S.D. Tex. May 1, 2002) Newby v. Enron Corp. (In re Enron Cor... , 2003 U.S. Dist. LEXIS 1668, Fed. Sec. L. Rep. (CCH) P92404 (S.D. Tex. Jan. 28, 2003) United States v. Arthur Andersen LLP , 2002 U.S. Dist. LEXIS 26870 (S.D. Tex. May 24, 2002) 18 USCS § 1512 Discussion/Analysis (of Law and Facts) During a legal discovery which includes the procedures of Deposition, Interrogatories and Production of Documents there can be different evidence found depending on the area of work the business organization is involved in. An example could be that a company tried to create false documents with the intent to seem like a good investment or to avoid paying taxes. During a deposition evidence can be found that people questioned tell conflicting stories. It is crucial to be able to deliver the right documents requested during a discovery. Therefore, it is important to have an organized record-keeping policy for any organization. Furthermore, a business should keep its records as correct as possible and not be tempted to give in to fraud, changing documents or destroying important documents. A company should follow the law to keep the required documents. It would be a crime to hide, destroy and/or withhold subpoenaed...
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...Final Paper: Case Study of WorldCom Financial Statement Fraud Introduction This paper will discuss the financial statement fraud committed by WorldCom by examining what led up to the fraud, who committed it and why, and the impact it caused on various stakeholders and the economy. WorldCom applied aggressive and undisclosed accounting tactics to provide financial statements that reflected a $10 billion profit for the years 2000 and 2001, rather than the actual combined loss of $73.7 billion that occurred (Romar, 2006). Opportunity, pressure, and rationalization were all present in this severe example of financial statement fraud which had a devastating impact on stakeholders globally. Basis for Understanding Financial Statement Fraud Prior to taking a deep dive into this specific example, it is important to first understand what constitutes financial statement fraud. Financial statement fraud can be defined as “deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors” (Wells, 2011, p. 299). Financial statement frauds can be broken down into five distinct categories: fictitious revenues, improper asset valuations, concealed liabilities and expenses, timing differences, and improper disclosures” (Wells, 2011, p. 292). The History of WorldCom “WorldCom began in Mississippi as a small provider of long distance telephone services” (Lyke, 2002). However, due to deregulation...
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...circumstances this power can distress other businesses and also the over-all community. Unethical behaviors in the accountant business are often challenging to identify. An accountant is good in what they do. They transfer money to their own bank account from the company account without anyone knowing. These actions also include bribes, insider swapping, misappropriation, and corruption. Also the furthermost things are exploitation of money and giving false material on business reports for private expansion. A lot of of the matters we go through with the present economy are responsible for the unethical conduct in the accounting business. Two of the well-known corporations that were finally jammed and arraigned for unethical conducts were Enron and WorldCom. The misrepresentation of business statements and deceitful commotion in the stock market affects thousands of stakeholders to miss money. Throughout this humiliation, a hand full of people in this company was making millions of dollars from other people expense. The Sarbanes Oxley Act of 2002 or frequently mention as Sox is known as Representative Michael Oxley and Senator Paul Sarbanes. Sox were announced to law in 2002 with the new rule guidelines concerning the approaches of economic procedures of organizations. Accurate and timely financial reporting is two of the major keys to the success of Sox ("Sarbanes-Oxley Act Section 401", 2003). The result of Sox on fiscal statements involves correct and not misrepresentative...
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...Comply with Sarbanes-Oxley Act Nguyễn Phước Đại dnguyen0191@student.bristoluniversity.edu Bristol University BUS 555: Business Ethics 10/16/2013 Comply with Sarbanes-Oxley Act Cynics sometimes like to say that locks on doors only keep honest people out, and the same is often true for accounting rules and regulations. We only trust financial statements from honest companies. Hefty penalties for violating the rules may act as curb for executives who are considering whether to play with their numbers. Accounting frauds most often stem from two conditions: lack of transparency and conflicts of interest1. The string of corporate scandals since the beginning of the millennium has taken its toll on investor confidence. Because reliance on corporate boards to police themselves did not seem to be working, Congress passed the Public Accounting Reform and Investor Protection Act of 2002, commonly known as Sarbanes-Oxley Act, which enforced by Securities and Exchange Commission (SEC). (Hartman, L., DesJardin, J. 2011, p426) The collapse of Enroll, WorldCom, accounting frauds at Tyco and the passage of Sarbanes-Oxley have forced boards of directors, particularly at publicly-traded companies, to reassess how they do acquisition deals and on what basis they can represent to the shareholders that the deal is fair to all parties. (Andrew J. Sherman & Milledge A. Hart 2006, p87) In business there is one simple rule: grow or die. Companies on a growth path will...
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...Companies such as WorldCom, Tyco, and Enron were involved in some of largest financial scandals in human history. In the investor community there was in chaos as investors began to lose confidence in the financial statement being released by companies. The government had to step in order to stop the bleeding. Two members of the US congress had the foresight to find a solution to the problem. The solution that was implemented is known as the Sarbanes-Oxley Act of 2002 (SOX). The Sarbanes-Oxley is a piece of legislation that changed the business world forever. The Act was created in order to raise investor confidence in the marketplace. One of the major problems the markets were facing was that greedy corporate officials were taken advantage of their position in order to make themselves rich at the expense of the shareholders and other stakeholders of the company. The Sarbanes-Oxley Act fixed the problem by making the CEO and top officials liable in cases of fraud. The section 302 of the Sarbanes-Oxley Act mandates that senior management certify the accuracy of the financial reports (Answers, 2010). If there is fraud present in the financial statement of a company the top executive of the firm faces fines of up to $25 million and prison terms of up to 20 years. Another problem that existed prior to the creation of SOX was the possibility of collusion between the external auditors and the executive managerial staff. In the Enron case the auditors knew about the fraud...
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...we would like to be treated ourselves…We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness, and arrogance don’t belong here.” This is the motto of Enron. Falling short of their words, we find the falling of this company through their illegal ethics that brings forward much of their self-interest needs and not those of the company and investors that they are responsible for and to. After the investigation, their accounting firm, Anderson, played both sides by providing dual services, auditing and consulting, which is considered a conflict of interest. They would take money from new investors and pay the old ones, they knew how to hide the debts and only show where there were profits. Falsifying documents and shredding of reports to hide what they didn’t want investors & employees to see as well. Senior executives cashing out their stocks to make millions for themselves and telling the rest of the company that they cannot cash out theirs, that it’s for the sake of the company to keep being invested. At the cost of the employees and investors, the executives were unethical, breaking the rules of the SEC and seek to gain it all for themselves, this is “self-interest” and illegal. They knew what they were doing, especially when it was reported by an Enron accountant saying she was “incredibly nervous that we will implode in a wave of accounting scandals.” They never warned employees or the public of their problems, but...
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...1) Describe the situation at Lehman Brothers from an ethic perspective. What’s your opinion of what happened here? Lehman Brothers had a culture problem, as they incentivized there employees to take excessive risks. Their culture fostered significant risk taking. They use to reward employees with lots of money for taking risks. Individuals who made questionable deals were treated as heroes; on the other hand anyone who questioned decisions was often ignored or overruled. They use to ignore risk just hoping for outlandish profits, meaning it felt more like a casino then an investment bank. They ignored basic regulatory rules which created financial danger. Basic rules are the way companies grow and expand. Their desire to make money at all cost was more important than following basic ethical values. 2) What was the culture at Lehman Brothers like? How did this culture contribute the company’s downfall? The culture at Lehman Brothers was to take risks at all costs. When Transactions were presented to them they ignored the warning signals costing them. This eventually led to shady deals which eventually lead to the company’s downfall. Repo 105 is a good example of how Lehman misused this device to get some $50 billion of undesirable assets of its balance sheet at the end of the first and second quarter of 2008, instead of selling those assets at a loss. They continued to take lots of risks which caused them to lose a lot of money, there by bringing down there previously...
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...A Primer on Sarbanes-Oxley This paper is an investigation of violations in finance according to Sarbanes-Oxley (SOX) as related to ethics and those influenced by decisions from investment management. I assessed the financial and social business practices of different organizations and identified ethical issues within the businesses that impacted internal and external stakeholders. Research revealed issues and activities that should have been resolved voluntarily prior to SOX’s enactment to meet ethical considerations relative to social and financial performance and the organization’s reputation. Recommendations were made based on studies and scholarly articles implicating the best governance practices organizations should adopt to remain compliant with SOX. What is SOX? SOX was established in 2002 as an act to strengthen corporate governance and restore investor confidence. The most important conditional term was to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws and other purposes (Jennings, 2012, p. 212). Provisions under SOX affected organizations’ processes and changed how financial information was released to the public. The act highlights the importance of information system controls by requiring management and auditors to report on the effectiveness of internal controls over the financial reporting component of the organization’s management information systems (Li, Peters, Richardson & Weidenmier...
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...Enron Corp.: Credit Sensitive Notes Solution Posted on January 28, 2013 by admin — No Comments ↓ This case investigates an innovative bond issue by Enron. The coupon on the bond is indexed to the company’s credit rating, making it a credit derivative structure.« Hide by Sanjiv Das, Stephen Lynagh Source: Harvard Business School 16 pages. Publication date: Feb 28, 1997. Prod. #: 297099-PDF-ENG Case Study 2 – Enron and Arthur Andersen Enron Corporation Case Study 2 – Enron and Arthur Andersen Enron Corporation began as a small natural gas distributor and over the course of 15 years grew to become the seventh largest company in the United States. Soon after the federal deregulation of natural gas pipelines in 1985, Enron was born by the merging of Houston Natural Gas and InterNorth, a Nebraska pipeline company. Initially, Enron was merely involved in the distribution of gas, but it later became a market maker in facilitating the buying and selling of futures of natural gas, electricity, broadband, and other products. However, Enron’s continuous growth eventually came to an end as a complicated financial statement fraud and multiple scandals sent Enron through a downward spiral to bankruptcy. During the 1980s several major national energy corporations began lobbying Washington to deregulate the energy business. Their claim was that the extra competition resulting from a deregulated market would benefit both businesses and consumers. Consequently, the national government began...
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...Accountancy is the production of financial records for organizations and shows readers in money terms the economic resources the company has under its control and represents it in terms of relevance and does this faithfully. Accounting is called “the language of business” because it acts as a vehicle for a business entity to report their financial information to groups of people outside of the company’s day to day activities. Some researchers believe the earliest instance of accounting was from a cave engraving in South Africa that was dated 76,000 years old. However the earliest proven accounting records have been dated back 7,000 years ago and were found in Mesopotamia. The people of the time relied on its primitive practices to record the growth of crops and herds. In Iran during the 4th and 3rd century, socioeconomic situations led to unequal distributions of wealth and so the leaders and priests appointed people to look after the financial matters. Godin Tepe, an archaeological site in western Iran, scripts only containing tables with figures were found. In Tepe Yahya, an archaeological site found in the Kerman Province in Iran, the scripts contained geographical representations as well. In both sites buildings containing large rooms for storage crops had tokens that were used for bookkeeping purposes on clay scripts which represented a cognitive leap for mankind. (Accountancy, n.d.) These early practices of record keeping were used mainly for the record keeper and...
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...Enron Corporation was a company that provided services which related to energys, commodities and services based in Houston Texas. Enron employed approximately 22,000 staff. It was one of the world's leading electricity, natural gas, communications, pulp, and paper companies. Enron claimed revenues of nearly $101 billion in 2000 before it filed bankruptcy in late 2001. Enron was named "America's Most Innovative Company" for six years in a row by Fortune. In 2001, Enron was accused of accounting fraud which later was recognized as the "Enron Scandal" and forced to file bankruptcy. The scandal led attention to other corporation's practices and activities from this result. The creation of the Sarbanes-Oaxely Act of 2002 was influenced by the Enron scandal as well. Enron's roots go back to a company that was formed in 1932 known as the "Northern Natural Gas Company". The company was reorganized in 1979 as leading subsidiary of a holding company known as InterNorth Inc. The company was a leader in natural gas, transmissions, and marketing. It was also a provider of natural gas liquids as well as an innovator in the plastic industry. InterNorth owned "Peak Antifreeze" as well as developing "EVAL" resins for food packaging. The Enron Corporation led itself into scandel, fraud, lies, and illegal financial cover-ups that would later be known as one of the biggest corporation scandels in history. 1. Discuss how Enron could have been structured differently to avoid such activities...
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