...ACC 260 Week 2 The Enron and WorldCom Scandals Material A+Grade Get Tutorial by Clicking on the link below or Copy Paste Link in Your Browser https://hwguiders.com/downloads/acc-260-week-2-the-enron-and-worldcom-scandals/ For More Courses and Exams use this form ( http://hwguiders.com/contact-us/ ) Feel Free to Search your Class through Our Product Categories or From Our Search Bar (http://hwguiders.com/ ) Assignment: The Enron and WorldCom Scandals • Resource: Business & Professional Ethics • Due Date: Day 7 [Individual forum] • Review the accounts of the Enron and WorldCom scandals in Ch. 2 of the text: o Enron’s Questionable Transactions on pp. 96-107 o WorldCom: The Final Catalyst on pp. 114-118 • Answer the following questions using complete sentences: o Enron: 1, 3, 5, 6, and 9 on pp. 106-107 o WorldCom: 1, 3, 4, and 5 on p. 118 • Post your answers as an attachment. Clearly label the case and question number for each of your responses. Enron questions 1, 3, 5, 6, and 9 1. Which segment of its operations got Enron into difficulties? The first thing that got them into trouble was the fact that Kopper was appointed to Fastow and he was an employee of Enron. I do not believe that he had the best interest involved. Another thing was that over 11 million was suppose to be invested and it never was. I believe that this was the start of the problems! Another thing was the fact that Enron was incorrectly booking revenue for services that was...
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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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...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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...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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...Situation analysis Important internal controls that were ignored? The auditors of Enron did fail in their task of providing a duty of care to all of the parties. The main reason for this is that they failed to correctly audit the assets and financial position of Enron resulting in all stakeholders having no clue about the forthcoming collapse of Enron. This resulted in the stakeholders facing a very critical condition or a phase where in they were not sure if they would be able to recover their investments and debts or not. The auditing process has revealed several issues and findings of problems within the accounting system and the same have been discussed as the primary areas of exposure, areas of possible mishandling of accounts receivable, possible mishandling in other accounting operations, Cause of the problems and the impact of the deficiency findings. How Enron’s harsh Performance Review Committee (PRC) could have aided company executives in committing the fraud? The auditors were required to consider the shortcomings in the financial statements of the firm and also analyze the frauds and imbalances in the financial statements in depth. Having failed to do this jeopardized the position of the investors as well as other stakeholders. It was clearly a company riddled with fraud and excess and its conduct drove it into bankruptcy. Analysts argue that individual behavior was not at the core of the firm's problems (Arens,Elder, Bensley., 2011). Some factors...
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...Case Study: Enron Corporation and Andersen, LLP----Analyzing the Fall of Two Giants The accounting issues involved in Enron’s case are: 1) Valuation issues with international assets; 2) Aggressive accounting treatments towards SPEs; 3) Negligence of information disclosure, and 4) Dereliction of duty of internal auditing department. The auditing issues involved in Enron’s case are: 1) Putting its reputation at risk, Andersen issued “clean” audit opinions on Enron’s financial statement; 2) Auditing and consulting services were provided by the same accounting firm, which led to conflict of interest and jeopardized integrity, and 3) The revenue of providing auditing service to Enron occupied so large a share of Andersen’s total revenue that it lost its independence when confronted to Enron. Questions: Q2. a. Every company should be headed by an effective board which is collectively responsible for the long-term success of the company. The board is responsible for providing entrepreneurial leadership of the company within a framework of prudent and effective controls that enables risk to be assessed and managed. The board should set the company’s strategic aims, ensure that the necessary financial and human resources are in place for the company to meet his objectives and review management performance. The board should set the company’s values and standards and ensure that its obligations to shareholders and others are understood and met. But the...
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...Enron Case The internal controls that were ignored when LJM1 was created were one, LJM’s books were kept separate from Enron's. LJM1 ignored some of Enron’s entries in the books that were missing. Outsiders owned less than 3% of the Special Purpose Entities equities. There was an error made by Arthur Andersen to let LJM’s financial statement to remain unconsolidated. If the financial statements had been consolidated, some of the errors could have been found. They may have even had some time to correct these errors before that had gotten so far out of control. There was not governing controls in place and fraudulent activities were unlimited. Andrew Fastow created LJM1 to handle investments with Rhythms NetConnections, high-speed Internet service provider. The stock that they bought at $10 million was worth $300 million after a year. Enron tried to sell the stocks to an investor, in case the stock price dropped. They could not find an investor to purchase the stock at the put option because of the risks that was involved. This is a clear violation as it created a scenario where Enron was basically insuring itself, and therefore, without insurance Enron's harsh performance review could have significantly aided their company, because the performance review was so strict that if someone was not performing in a given period of time, they would indicate a poor rating to that employee and fire them. Enron harsh performance review committee aided company executives in committing fraud...
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...The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron The tale of Enron is a story of human weakness, of hubris and greed and rampant self-delusion; of ambition run amok; of a grand experiment in the deregulated world; of a business model that didn’t work; and of smart people who believed their next gamble would cover their last disaster—and who couldn’t admit they were wrong.1 Once one of the country’s foremost companies in regards to earnings, innovation, and reputation, Enron seemed to have it all. No one would have ever suspected that the company was billions of dollars in debt. Those at the top frequently assured everyone that all was well. No one thought to look any further. And therein lies the problem… While there is an endless list of things that could have altered the path Enron was on, I am only going to touch on a few of my recommendations. First of all, the corporate culture of Enron was a breeding ground for greed and immoral actions. Employees were rewarded for the money they brought in, no matter how it was made. They were encouraged to use unsavory ways to drive the price of their product up, no matter the cost to the consumer. They exploited their customers time and time again in the name of good business. This all stemmed from the “tone at the top.”2 “Tone at the top is a level of commitment to integrity, to doing the right thing at all costs despite the consequences such action may have on financial performance. Actions...
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...Question 2 Referring to Section 550 Quality Assurance and Practice review of the MIA By-Laws (on professional ethics, conducts and practice) and ISA220 Quality Control for an Audit of Financial Statements, do you believe that the engagement leader of an audit (like David Duncan on the Enron audit) should have authority to overrule the opinions and recommendations of the accounting & auditing function? Why or why not? In our opinion, the engagement leader of an audit should not have the authority to overrule the opinions and recommendations of the accounting and auditing function. To support our judgment, we refer the case to Section 550 Quality Assurance and Practice Review of the MIA By-Laws and ISA 220 Quality Control for an Audit of Financial Statement. Section 550.1 The By-Laws states that every member in public practice has to ensure that the firm adopts and applies policies and procedures designed to maintained adherence to professional standard. Enron had been hiding its Special Purpose Entity (SPE) by not consolidating the entity into its financial statements. The SPE were used to embezzle funds and hide the firm’s debts and expenses. This caused the firm to have understated expenses and profitable financial statements. The action of creating SPE is totally against the fundamental principles of auditing in terms of integrity. The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in all professional and...
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...TAB B TOPICS: THE CASE OF ENRON REQUIRED: After reading the case and articles in the Tab B readings, answer the questions below. You should download this document and include the question above your answer to make it easier to grade. Your answers should be in complete sentences. Based on the nature of the questions, one or two short paragraphs for each question should be adequate. You should print out your article write-up and submit it in class on the due date. 1. What was the nature of Enron’s business in 1985? How about in 2000? In 1985, it was a natural gas pipeline company. By 2000, it built leading businesses in energy trading and international energy-asset construction. 2. How could Enron earn money by trading in gas contracts? They would buy natural gas at spot prices instead of bundles (which was what was required before the deregulation of gas). This made the price of gas more volatile. Skilling suggested that Enron sell the gas in long-term fixed-price contracts with customers. To prevent the company from losing money due to price fluctuations, Enron would also enter long-term fixed-price contracts with producers by using swaps and forward and future contracts to make sure it met the energy requirements of customers. 3. Enron expanded its trading model to markets other than gas. What other markets did they expand into? Were there any concerns from expanding to these other markets? They...
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...Business Ethics: Enron Case Study Introduction: Enron was a very powerful company that was doing very well in the market. The value of its share was high and the company was enjoying an overall healthy position as a business. The employees were happy and new recruits would have killed to get a job at Enron. However, this was not to last. Enron enjoyed so much success that it got to its head and it started making all sorts of problems. Enron decided to change its organizational structure by employing new people at high posts who were given the opportunity to make big decisions that could directly affect the organization. Thus, their organizational design was altered. The reward system within the organization was also changed since the top performers were given the opportunity to receive many bonuses and stocks options. This new system was to be controlled by an internal controlling authority but this did not work well because the people who were reviewing and those who were being reviewed were working on the same levels and this caused them to form alliances among themselves. They all ‘looked out’ for each other and were not honest with their reviews, and everyone was given good reviews. Employees were scared to do something that would anger their superior and this is why they all became ‘yes men.’ This created a very unstable culture that was based on dishonesty and this caused Enron’s downfall. Division of Workers and Executives: The Culture at Enron Enron’s...
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...Sarbanes Oxley: An Antidote To Executive Greed? | May2011 | “Today I sign the most far-reaching reforms of American business 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...
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...Business Ethics: Enron Case Study Introduction Enron was a very powerful company that was doing very well in the market. The value of its share was high and the company was enjoying an overall healthy position as a business. The employees were happy and new recruits would have killed to get a job at Enron. However, this was not to last. Enron enjoyed so much success that it got to its head and it started making all sorts of problems. Enron decided to change its organizational structure by employing new people at high posts who were given the opportunity to make big decisions that could directly affect the organization. Thus, their organizational design was altered. The reward system within the organization was also changed since the top performers were given the opportunity to receive many bonuses and stocks options. This new system was to be controlled by an internal controlling authority but this did not work well because the people who were reviewing and those who were being reviewed were working on the same levels and this caused them to form alliances among themselves. They all ‘looked out’ for each other and were not honest with their reviews, and everyone was given good reviews. Employees were scared to do something that would anger their superior and this is why they all became ‘yes men.’ This created a very unstable culture that was based on dishonesty and this caused Enron’s downfall. Division of Workers and Executives: The Culture at Enron Enron’s earlier organizational...
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...Enron Company James Miles September 28, 2014 ENRON COMPANY FRAUD Based on the findings from milestone one, it is clear that Enron Company experienced an accounting fraud resulting in a spectacular bankruptcy. This was brought about by the accounting fraud made by the accounting firm. An accountant may face accounting dilemma of reporting any accounting violation to the financial accounting body of a company. It is an ethical duty for an accountant to report any such violations but also the dilemma arises on whether to report any uncertain mistake in the accounts. In the case of Enron Company the mistake was done by the accounting firm and the involved CEO was Jeff Skilling. According to legal and ethical issues of accounting fraud, government review of company financial records caused by an accounting scandal could cause the company’s rapid decline and can also lead to the layoff of thousands of employees and we can see from the Enron Company that it dropped its shares from $90 to $0.50 which brought loss to employees and a big financial loss to the investors who had saved their money in the Enron Company. From the legal ethical issues, executives and other corporate officers can also face criminal prosecution, leading to heavy fines and prison time as seen from the case where the scandal resulted in penalty of CEO Jeff Skilling. Jeff Skilling was sent to prison for 24 years for engaging in accounting fraud for the financial collapse of the company. Arthur was not charged...
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...between external auditors and Enron and the existence of conflicts of interest. From 1993, Enron started to outsource its internal audit functions to Anderson. Besides, conflicts of interest gets aggravated when the cross-selling of consulting services by auditors increases a lot. And consulting fees to auditors are much lucrative than the audit fees. As a result, Enron could easily threaten Anderson to give a favorable opinions to the public and otherwise Anderson couldn’t maintain a good relationship with Enron. Most importantly, there is a significant lack of independence because a number of Anderson employees joined Enron, including accounting officer, treasurer and the chief financial officer over the years. Those employees in management level are more likely to be confident with the financial report of Enron and lack professional criticism when considering the accounting methodology used by Enron because of their possibly previous audit involvement. Equal important aspect of failure comes from the inefficient and lack of shared concerns with Enron’s audit committee or management. Auditors didn’t fulfill their responsibilities to discuss with the audit committee the significant risks (risky employed accounting techniques) identified during the audit risk assessment procedures and their own concerns regarding retaining the Enron as a client. For the board of directors, they breached a duty of care, loyalty and candor because it allowed Enron to engage in high risk accounting...
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