...Enron Corporation Scandal The Enron Corporation scandal, exposed in 2001, led to the downfall of the 7th biggest corporation of the world and carried the fifth largest auditing firm Arthur Andersen with it. The extremely complex fraud case was devised and led by top company executives Jeff Skilling, Andrew Fastow and Kenneth Lay. The executives used financial engineering to find loopholes in the system and cover their tracks, posting inexistent revenues and concealing debt. This paper discloses what happened to Enron Corporation and includes major legal issues top executives face. Enron was founded in 1985, and rose to become one of the world’s leading electricity and natural gas companies. It was pronounced by Fortune magazine as the most innovative company six times in a row. Which raises a question: what caused such a corporate giant like Enron to fall so fast? There are many factors that contributed to Enron’s demise, however the key factor, which enabled this elaborate scheme, was the mark to market accounting method introduced by Jeff skillet. Mark to market is a questionable accounting method, it requires the firm to post its theoretical future profits in the balance sheet once a long-term contract is signed. Executives at Enron used this to their advantage, posting unrealistic profits. One of the company’s biggest projects was the construction of a power plant in India, using mark to market, executives predicted profits in the billions, in addition they...
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...similarities and the differences in the corporate scandals that have been identified in the past few years Identify the responsibilities of managers to the shareholders and other stakeholders associated with their corporations. OVERVIEW Corporate governance is not a new topic. It has been around for many years, often described as the “agency issue.” However, in recent years it has taken on increased significance, demanding increased attention. Since 2001, in particular, the corporate marketplace has seen a significant number of headline grabbing scandals involving major corporations. These scandals have raised new questions about corporate governance and, as a direct consequence of some of these situations, the U.S. Congress passed a very broad piece of legislation called the Sarbanes-Oxley Act of 2002. This law has had a wide range of consequences directly affecting large public corporations and public accounting firms and, less specifically, smaller public firms, private corporations, not-forprofit organizations and regulatory entities in many different ways. This law mandates some specific actions for large public corporations, many of these actions being required shortly after the legislation passed and others in the subsequent years. While the law specifically applies to publicly-owned corporations, the provisions of Sarbanes-Oxley are also being required as well of privately held companies and notfor-profit organizations by large corporations to whom these organizations are suppliers...
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...“ENRON SCANDAL” The Enron Corporation was the biggest in a series of scandals that damaged the reputations of corporations in the United States. It represented one of the largest fraud scandals in history. As a result, the company was said to force to file for bankruptcy in 2001 of December. This is where Sarbanes-Oxley Act was imposed with stricter rules on auditors and made corporate executives criminally liable for lying about their accounts. Enron was known as a provider of products and services related to natural gas, electricity and communications to wholesale and even retail customers. As an accounting major student I recognized that there were several doubtful accounting schemes that Enron used just to manipulate the employees, investors, customers and everyone. While I found that there are a lot of issues to expound on, the main issue is how fraudulent their company was especially having misrepresented their public financial reports. The financials presented by Enron were restated. In 2000, the profitability was less than 1%, becoming clear that Enron’s profits were realizable only if the quality of their revenue is good but if not it is not realizable. Enron used SPEs or Special Purpose Entity this is used to keep Enron’s debts and losses away from its balance sheets, therefore allowing it have a good credit rating and look good in front of the investors. In this case it is purely seen as an investment scam. In the company were I worked on last year...
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...| The Enron Scandal | | Introduction Enron Corporation was an American energy, commodities and services company based in Houston, Texas. From the 1990's until December 2001, Enron was famous throughout the business world and was named by Fortune as "America's Most Innovative Company" for six consecutive years. It grew wealthy due largely to marketing, promoting power, and its high stock price. Before its bankruptcy, Enron employed about 21,000 staff in forty countries and was one of the world's major electricity, natural gas, communications, and pulp and paper companies, which claimed revenues of $100.8 billion in 2000. Enron gave the illusion that it was a steady company with good revenue which was not the case, as a large part of its profits were made on paper through a creatively planned accounting fraud. Deep debt and surfacing information about hiding losses gave the company big problems and in the late 2001 Enron declared bankruptcy under the United States Bankruptcy Code. The collapse was followed by a series of revelations on how the executives manipulated Enron's success. The Fraud Schemes The Enron scandal, revealed in October 2001 was a management fraud involving top executives of Enron who deliberately manipulated the accounting structures in order to conceal their losses and debts so that the corporation appeared to be performing favourably. They adopted mark-to-market accounting, an accounting system based on market value, which was then inflated; the...
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...Enron Corporation Overview: The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure. Issue: Enron, once the countries seventh-largest company according to the Fortune 500, is a good example of how greed and the desire for success can transform into unethical behavior. Good ethics in business would be to compete fairly and honestly, to communicate truthfully and to not cause harm to others. These are things that Enron did not seem to display, which led to Enron’s operations file for bankruptcy in 2001. Enron’s scandal has become one of the most talked about forms of unethical business behaviors. The company’s collapse resulted from the disclosure that it had reported false profits, used accounting methods that failed to follow generally accepted procedures. Both internal and external controls failed to detect the financial losses disguised as profits for a number of years. Enron’s managers and executives retired or sold their company stock before its price went down. Enron employees lost their jobs and most of their retirement savings invested in Enron stock. Enron’s dishonesty and misleading business ethics...
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...The Enron Scandal Background Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000.[1] Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the Enron scandal. Financial Frauds Enron’s downfall is basically the accumulated effect of its unethical practices in financing and reporting. Enron's non-transparent financial statements did not clearly depict its operations and finances with shareholders and analysts. In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to portray a favorable depiction of its performance. Enron's accounting and financial transactions is designed to keep reported income and reported cash flow up, asset values inflated, and liabilities off the books. The combination of these issues later led to the bankruptcy of the company: Aggressive Revenue Recognition As an energy supplier, Enron can be considered as merchants or agents. As merchant...
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...Alexis Isbell 11/1/2012 Case Project The Enron Scandal Near the turn of the 21st century, a seemingly large Dallas-based gas company sent a shockwave around the world in what would become known as the Enron scandal. The Enron scandal would cause many people to not only lose their jobs and their ways of life, but it would also cause people to become weary of these incredibly large companies. The Early Years (1985-early 1990’s) Enron was the brainchild of Kenneth Lay, when he brought about the merger of Houston Natural Gas and Omaha-based InterNorth. Enron Corporation created the first nationwide gas pipeline network in America, and would continue to grow throughout the 1990’s. In the early 90’s, after the United States government deregulated natural gas, Enron started growing into an extremely large company, whom employed over 21,000 workers. Enron would continue to grow into the nation’s seventh largest company. Enron’s profits skyrocketed through the roof once they were able to freely sell and buy natural gas in the United States. Enron would continue to grow into one America’s most profitable companies in the late 1990’s, but the argument could be made that is what possibly led to their drastic, and frankly embarrassing downfall. The Later Years (mid-late 1990’s – 2001) As previously stated, Enron would become one the nation’s most profitable companies in the late 1990’s. “Enron’s reported annual revenues grew from under $10 billion in the early 1990s...
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...energy, commodities and services company, Enron Corporation, filed for bankruptcy. This was not just an ordinary corporate bankruptcy; this was the largest corporate bankruptcy in the history of the United States (Gutman, 2002). Understanding the reason behind the bankruptcy filed by Enron, which employed over 20,000 people, is instrumental in understanding why major changes in the accounting industry have to come to pass. To understand why Enron filed for bankruptcy, one must first understand who was handling their company finances. That who was Arthur Andersen, the accounting firm convicted of obstruction of justice by destroying documentation relating to Enron’s finances. Although Arthur Andersen was auditing the accounts of the Enron Corporation, it was Enron’s own executives that lead to its downfall. At the time, there were certain securities in place to help protect investors and the public such as Generally Accepted Accounting Principles (GAAP), Generally Accepted Auditing Standards (GAAS), Statements on Auditing Standards (SAS), and a few other things such as the business code of ethics. However, Enron executives found a way around this. Unfortunately for them, that way was illegal and led to the scam being known as the Enron Scandal. The top executives at Enron had been inflating their balance sheets by valuing assets at far greater values than their worth as well as hiding their liabilities. Not only did Enron build a mountain for their company in engaging...
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...at work you are not supposed to do”; however, OM is a wide topic of investigation and the understanding of this subject depends on different aspects, theories and perspectives (Richard, 2008). Other researchers saw misbehaviour as something more linked to relations within an organisation, stating that OM is mainly based on interactions between people and that is relied on ethical issues in employer-employee relationship (Deckop, 2006). This essay will mainly explain and analyse the different types of misbehaviour that can be found in a particular case: The Enron & Arthur Andersen scandal, the “Why’s” and “How’s” these two companies fell into corruption and thus, misbehaviour. Enron & Andersen Enron Corporation was an energy company founded in 1930 based in Houston, Texas. It never shined out until 1996, when the firm was considered as one of the most innovative organisation in the world (Debinski & Al). Enron started lying about its profits and liabilities, stating that their assets worth much more than it actually did and deleting all its debts with the help of Enron’s main auditor, Andersen. This eventually led to a significant increase on the company shares of 336% to a peak of $90 per share dropping to $0.67 (Cunningham, 2006), resulting in many investors and employees losing all their life savings valorised in $11 billion...
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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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...Summary of facts of the scandals at Enron ................................................................................. 1 3. Summary of facts of the scandals at WorldCom ........................................................................ 2 4. Enron and WorldCom executives prosecution ........................................................................... 5 5. Effects of the scandal, legislative perspective ............................................................................ 5 6. Comment and lesson to Rwandan business sector ...................................................................... 7 6.1. Corporate governance .......................................................................................................... 7 6.2. Committed crimes during the scandals .............................................................................. 10 6.2.1. Insider trading .............................................................................................................. 10 6.2.2. Wire fraud .................................................................................................................... 11 7. Conclusion ................................................................................................................................ 12 8. Authorities................................................................................................................................. 13 1 Lessons from Enron and WorldCom cases ...
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...Review the mandated requirements for legal compliance (from chapter 4) and determine which requirements apply to the Arthur Anderson case. There are five categories that separate the mandated requirements for legal compliance. Two directly apply to the Arthur Anderson case. Those requirements include (1) protection of consumers, and (2) incentives to encourage organizational compliance programs. When I read the text, the examples which were given were all about making sure that people were not taken advantage of as a result of an entity’s business practices. The mandated requirement, incentives to encourage organizational compliance programs, speaks directly to the Arthur Anderson case. Our text states, “Gatekeepers such as lawyers, financial rating agencies and even financial reporting services must have high ethical standards.” High ethical standards don’t just happen they are enforced. Without compliance programs, loopholes are created for the dishonest. Discuss how the issues with the Arthur Anderson case may have played out differently if the Sarbanes-Oxley Act had been enacted in 1999. The provisions of Sarbanes-Oxley Act help minimize the likelihood of auditor failing to identify accounting irregularities by the following requirements: 1). Improving the internal control. Auditors comment on the internal control of the firm should be reported. 2). Reinforcing supervision for financial irregularities. This act boosts to establish an independent the Public Company...
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...Enron is a prime example of how unethical behavior can affect millions of people. Enron Corporation was once known for bring one of the largest leading suppliers of electricity, natural gas, and communications bust since it’s scandal Enron will be known for corruption and accounting fraud. Enron intentionally reported falsely inflated estimates of income and did not report all debts the company owed. Enron Corporation filled for bankruptcy in 2001 which led to criminal investigation that include insider trading, money laundering, as well as fraud involving many of the top executives. In November 2001 Enron announced publically the company was worth far less than previously reported, in fact $1.2 Billion less (Securities fraud FYI.com 2006). Originally in an attempt to attract new investor’s managers acted unethically in the way of providing false income statement figures. The accounting firm Arthur Andersen was proven to be a major contributor in the scandal that led to the collapse of Enron and a loss of billions to investors. While the investigation proved some insiders tried to alert attention or raise warnings about the accounting irregularities the warning went unheard. In order to asses the value of a company including it’s financial condition analysts look at the total value of the company’s assets, return on equity, cash flow statements, and earning or net profits. The presence and enforcement of the Sarbanes – Oxley Act has enhanced standards and established new...
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...The activities of the leadership of Enron and its Board of Directors is a virtual how to on how unethical decisions can and will eventually bring a company to the brink of collapse. The short term rewards of unethical activity can be quickly overcome by the destructive force of investigations and market swings. How greed and lack of oversight can cause the disruption of the livelihoods of employees not directly involved with the unethical behavior. We will examine the events leading up to the bankruptcy of Enron as well as the resulting legislation put into place because of the misdoings of Enron and other companies. Before Enron became one of the top ten largest companies in the United States it was formed by the merger of Northern Natural Gas and Houston Natural Gas. Kenneth Lay was the original CEO of Houston Natural Gas and took the reins of Enron 6 months after the merger in 1985. In early 1990, Andrew Fastow, who became the Chief Financial Officer and Jeffrey Skilling, the current head of Finance at Enron, joined forces. This was the beginning of the creative accounting practices utilized by Enron during Fastow’s tenure. Using loopholes in Generally Acceptable Accounting Procedures, these individuals were able to cook the books for Enron for 4-6 years and thus sealed the fate for the employees. From the Board of Directors down to the mailroom employees. To come up with a company’s bottom line you take the liabilities and subtract them from the assets...
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...Business Failure: Enron Chris Shealy LDR/531 August 22, 2011 Ericka Hilliard The Enron scandal was a corporate scandal involving the American energy company Enron Corporation based in Houston, Texas and the accounting, auditing and consultancy firm Arthur Andersen that was revealed in October 2001 (Wikipedia Enron Scandal 2001). All of this started when there was a loophole discovered in the accounting department when they were allowed to book large sums of money from energy-derivative contracts at their gross value and not their net value. This tactic although legal many analysts and investors saw what Enron was doing. This was called the distorting technique which allowed Enron to become one of the largest companies in the world. All of the hiding came from within Enron’s balance sheet. To let you in on Enron’s hidden success, Enron was allocating all of there money to independent private partnerships. This strategy showed that Enron’s market share was sky-rocketing to levels never seen before. The thing that was kept hidden was Enron’s asset and liability portfolio. Between 1996 and 2001, Enron reported an increase in sales from 13.3 billion to 100.8 billion (Forbes, 2001). In 2002, there were reports starting to come out about Enron’s wrongdoing. Everyone believed at the time that the Bush administration was telling the truth about what was going on at Enron. Now that Enron is bankrupt, many still believe that there was ever any wrongdoing at Enron. Even though...
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