...The Enron Fraud Enron Corporation was a conventional energy company founded in 1985, but soon expanded its operations as an energy trader of derivatives contracts, taking advantage of the deregulation of the energy markets. It also built and operated a variety of assets across the globe, including pipelines, electricity plants, pulp and paper plants, water plants, and broadband services; and provided financial and risk management services to customers worldwide. Enron soon became a world-renowned company and it was labeled as the most innovative company in the U.S. for six consecutive years between 1996 and 2001 by Fortune magazine. It was ranked the sixth largest energy company in the world in 2000, with close to 22,000 employees and nearly $101 billion in revenues. But in 2001 the company’s reputation began to fall following rumors of bribery to obtain contracts in different parts of the world. Likewise, fraudulent accounting techniques, which were supported by its external auditing firm Arthur Andersen, allowed the company to create the largest corporate scam know in U.S. history until then (McLean, 2008). Enron’s fraud consisted of, what its CEO called, creative accounting: off-balance-sheet items, complex financing structures, and deals so bewildering that made financial statements misleading and difficult for the stakeholders to understand, deceiving the main objective of financial reporting which is “to provide financial information about the reporting entity...
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...Q:How Enron fraud? A:1.Stock Option Incentive motivation of fraud 2.Defective internal control mechanisms 3.Complex financial reporting. Answer 3: Enron in financial problems are mainly reflected in four aspects: First, to complex financial structures Enron conceal the problems. In support of Enron-like explosive growth, with Enron complex corporate networks and related transaction, Enron's management to create a very complex financial structure, not only retail investors can not understand, and even Wall Street analysts and accounting professor are difficult to interpret. Enron's use of complex financial structure, unbridled fictitious profits, hidden debt. Second, the accounting treatment Enron pioneered a number of technologies, enabling the company to record revenue generating profit and loss information has not been long-term contracts. For example, Enron uses a technique called "MTM (Mark-to-Market) "accounting system, the accounting system to allow Enron and other energy companies to increase their current net income from the book, and these contracts in 10 years or may not be realized in the longer. Meanwhile, the accounting system also requires that a company can not disclose how the details of the valuation of the order, it may not disclose how much revenue from such non-cash benefits. There are accounting experts believe that due to the energy product orders vary greatly, and therefore does not provide a method to its valuation, which gave Enron fraud...
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...FORENSIC ACCOUNTING ENRON: The Smartest Guys in the Room Movie Summary Gerald Prayogo ------------------------------------------------- 342858 Enron: The Smartest Guys in the room is a documentary movie based on the book of the same name. Essentially, it tells us about one of the biggest fraud ever performed in the US. It tells us of the downfall of Enron: its scandals, the prosecution of its perpetrators, as well as its role in California electricity crisis. The film describes the biggest names on the fraudulent corporation. First is Kenneth Lay, the founder of Enron. Kenneth, nicknamed ‘Kenny Boy’ by his spouse, got the company into scandal in just two years after its establishment, after Enron’s managers bet on oil markets. The second is Jeffrey Skilling, the man who utilized mark-to-market accounting, which allow Enron to appear as being a profitable company, even if the reality might not be so. He also applied the Darwinian philosophy on Enron by establishing a ‘rank and yank’ system, a system of which a group of review commitees grades employees and fires the bottom fifteen percent. Skilling was also described as having a soft spot for “guys with spikes”; which made him recruit J. Clifford Baxter, a manic-depressive; and Lou Pai, the CEO of Enron Energy Services which was known for using shareholder money to pay strippers. Enron managed to get a myriad of profits during the dot-com bubble by using the process known as “pump and dump”: pushing up their stock prices and...
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...CASE STUDY #1 | The Function of Accounting Information Systems in the Enron and Bernard Madoff Fraud Cases | | | | | | | What is the definition of accounting information system? The Core Concepts of Accounting Information Systems textbook defines accounting information system “as a collection of data and processing procedures that creates needed information for its users” (Bagranoff, 2010). A key factor in determining the success in an organization is its accounting information system. It is the combination of the organization’s resources, such as its people, procedures, and business records that it (the organization) maintains to provide financial data. The basis of this case study is to disagree with the question of whether or not accounting information systems played a role in the Enron and Bernard Madoff fraud cases. All organizations should have an adequate, effective, and efficient accounting information system in tack. In my opinion, the Enron and Bernard Madoff fraud cases had the classic signs of pure greed; the accounting information systems were perhaps manipulated, ignored, and compromised to financially suit the personal gains of the individuals involved and did not assist with the cases. An important part of the accounting information system is its internal control system. Internal controls are methods and procedures used by an organization to safeguard assets, authorize transactions, and ensure accuracy of the accounting records...
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...Effect of unethical article ACC 291 June 27, 2013 Julio Medina The unethical behavior of Enron Corporation The unethical habits and behavior's in accounting would be deceptive under financial analysis such as gainings, misuses of fundings, overstating the value of corporate assets or underreporting the existence of liabilities, overdoing revenue as well as understanding expenses. Another unethical systems would be securities fraud, manipulation of the financial markets and bribery. Enron is one of the greatest example that impact the unethical behavior. Enron corporation was an American energy company was formed from the merger of Houston Natural Gas including the inter north a Nebraska pipeline company. Enron employed around 21,000 people and was one of the worlds leading natural gas, pulp, electricity, and communications companies. Enron reported financial situations of were the company constant of institutionalized systematic planning accounting fraud having rumors of corruption to secure contracts in central America. Enron's ethics of coding was created on respect, integrity, communication, and excellence. These values were described as follows. Respect. We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don’t belong here. Integrity. We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we...
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...Professor Young March 5, 2011 Enron was an old line energy company, owning electric power production facilities and natural gas pipelines. It engaged in several acquisitions during the late 1980s and the 1990s that dramatically increased its size. Its acquisitions included power companies in the U.S. and abroad, as well as investments in various energy and technology companies. In the 1990s, Enron reorganized itself as an energy trading company, whose primary form of business was to trade in various energy vehicles, including contracts to provide electric power in the future at pre-determined prices and similar contracts to deliver natural gas, water rights, wind power systems, broad band transmission systems, insurance, and other products. 1. Describe how Enron could have been structured differently to avoid such action. Enron, like most public companies was required by law to describe its party transaction to shareholders and the members of the investing public in several different disclosure documents. Overall, Enron failed to disclose facts that were important for understanding the substance of the transaction. Although they did disclose that there were large transactions that the CFA had interest. Enron did not give the CFO’s actual or expected benefits from these transactions or provide complete financial statements. The organizational structure could have been different by not changing the original structure. When Enron decided to change its structure by...
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...ENRON: The Idiocy and the Irony Introduction Red flags were blinding as Enron learned about possible corruption with Enron Oil Trading in Valhalla, New York. After the merger between HNG and InterNorth, the Valhalla office, originally established by InterNorth seemed all but forgotten until quarterly and annual reports were due. Supervisors Tom Harding and Steve Sulentic were rarely on-site, preferring the comfort of offices in Houston. Louis Borget who established and operated the trading business was an autocratic manager, receiving excessive incentive payment for profitable performance. Between 1984 - 1986, Valhalla continued to report profits in the emerging oil trading industry. A call to Enron in Houston by Apple Bank would shatter the false sense of security regarding Valhalla. An ensuing investigation by Arthur Andersen, an accounting firm employed by Enron, failed to produce concrete evidence of misappropriation within Valhalla. Questionable practices were identified, but Enron failed to react appropriately to this information. CEO Lay was able to persuade key executives within Enron and the board of directors to keep running Valhalla offices, with minor changes in personnel. Mick Seidl, unhappy with Lay’s influence over the board, called Mike Muckelroy to investigate Valhalla. Muckelroy’s investigation would become the tipping point regarding Valhalla. With a secret set of books discovered, fraudulent trading entities identified and $1 billion...
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...The Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is a federal agency that provides protection for investors and regulates the bulk of the securities industry including: U.S. stock exchanges, options markets, and other electronic exchanges and securities markets. The Securities Exchange Act of 1934 created the laws that regulated it. The Securities Exchange Act of 1934 is a law governing the secondary trading of securities in the U.S. The commission's division of enforcement investigates possible violations of federal securities related laws and can take civil action with other law enforcement agencies when it comes to criminal cases. The market crash of 1929 and subsequent Great Depression took a toll on the public's trust in capital markets. Investors looking to go from rags to riches turned to the stock market during the roaring 20s. According to the SEC, an estimated $50 billion in new securities were offered, and half became worthless. Congress passed the Securities Act of 1933 and The Securities Exchange Act of 1934 (which created the SEC) in an effort to restore confidence in the markets. Publicly traded companies were now obligated to disclose investment risks and provide full information about the state of their business. Brokers, dealers and exchanges were now legally required to put the interests of the investors first and treat them in a fair and honest manner. Congress established the SEC to enforce these laws for the sake...
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...of Enron‘s bankruptcy filing, numerous Enron executives were charged with criminal acts. Those charges were fraud, insider trading and money laundering. Enron was described as―House Of Cards‖ as it was built over a pool of gasoline. It all sort of became smoke and mirror. Louis Borget, former Enron's CEO was also exposed to be rerouting company’s money to offshore accounts. Once their schemes were discovered by the auditors, Kenneth Lay encourages them to "keep making us millions". However, the traders were fired once it was revealed that Enron's reserves were gambled awaywhich nearly destroyed the company. After these facts were brought to light, Ken Lay denies having any knowledge of wrongdoing. Needless to say, when required to testify before the U.S. Congress on the reasons for Enron‘s collapse, Ken Lay, Jeff Skilling and Andrew Fastow, sought refuge under the Fifth Amendment. Andrew Fastow, Jeffrey Skilling, and Kenneth Lay are among the most notable top-level executives implicated in the collapse of Enron‘s. Kenneth Lay, the former chairman of Enron was prosecuted on 11 criminal counts of making misleading statements and fraud. Jeff Skilling, former Chief Executive Officer (CEO) of Enron was charged on 35 counts that included conspiracy wire fraud, insider trading, securities fraud, and making false statements on financial reports. Andrew Fastow, former Enron’s Chief Financial Officer (CFO), faced 98 counts of money laundering, fraud, and conspiracy in connection with the...
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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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...09/06/2015 Research Paper – Enron and Ethics in Financial Reporting Table of Contents Cover Page – Page 1 Table of Contents – Page 2 Introduction – Page 3 Statement of Problem – Pages 4-5 Analysis of Problem – Pages 5-6 Conclusion – Pages 6-7 References – Page 8 Introduction A major scandal that still resonates in financial markets today was Enron’s bankruptcy. The business environment of the time included a deregulated energy market (specifically in California) that allowed Enron to inflate their stock prices and offer their commodities at a premium. Additionally, there was little oversight for off balance-sheet transactions. This allowed Enron officials to hide losses in offshore captives with the help of Andrew Fastow. This and other creative accounting practices allowed Enron to report huge profits while in reality Enron was not legitimately profitable. Enron also inflated revenue numbers by buying and selling the same commodities over and over, reporting each transaction at full value (Forbes). In turn, this inflated stock prices of the company beyond what was reasonable. Statement of Problem The decline of Enron began in 2001 with Jeff Skilling being named CEO. During this time, a vice president of Enron voiced her concerns regarding the unethical business practices of the company and described the company as an “Elaborate Hoax” (NY Times). Former CEO Mr. Lay, meanwhile, had been telling investors that the now decreased stock of Enron was an “incredible bargain”...
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...Enron and Arthur Andersen Accounting Scandal The Enron accounting scandal resulted in a loss of reputation to Arthur Andersen which was a result of fraudulent financial statement reporting. Crimes discovered included irregular accounting procedures which could be turned in as fraud which involved Enron and Arthur Andersen as its accounting firm. They were found to have committed wire fraud, security fraud, making false statements to banks, creating several “independent” companies, called “Special-Purpose Entities” (SPEs) and using them as a way to hide many bad and devalued assets to fool investors into believing Enron was financially healthy so Enron executives could pocket millions from sales of inflated stock. They created a company called LJM1 which purchased the provider’s stock at inflated prices and took them off the books at Enron. Later, when the price of the stock fell, Enron did not have the loss on its books. LJM allowed Enron to move money-losing assets off its balance sheet. LJM was also involved in complex hedging that was supposed to reduce the volatility of some of Enron's investments, including stakes in high-tech and telecom businesses. Arthur Andersen, Enron’s accountants, were accused to have allowed LJM1 to be isolated from Enron’s books, and go unnoticed. In the end, LJM1 was stuck with stock from the internet provider, which they purchased from Enron at inflated prices, and now were worth much less. Andy Fastow was the Enron executive who...
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...MBA 6070X – Ethics & Law Essay 2 February 2015 Enron - Ethics & Law Essay Introduction: Enron Corporation was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000 employees and was one of the largest electricity, natural gas, paper, and communication companies, with overall revenues of nearly $101 billion in 2000. The company developed, built and operated power plants and pipelines while dealing with rules of law and various infrastructures worldwide. In just 15 years, Enron grew into one of America’s largest companies and leading magazine “Fortune†named Enron “America’s Most Innovative Company†for six consecutive years. Enron divided its business into three main areas: (I) Enron Wholesale, (II) Enron Energy Service, and (III) Enron’s Global Asset. Enron wasn’t focusing to specific industry strategies. Rather, it has an overall strategy that calls for creating an environment and culture of creativity and idea generation. “Enron is a laboratory of innovation. Enron’s entrepreneurial approach calls for new insights, new ways of looking at problems and opportunities. Enron has an exceptional ability to leverage its intellectual capital. Individuals are empowered to do what they think is best. Enron’s philosophy is not to stand in the way of our employees. This environment spurs the innovation that enables Enron to revolutionize traditional energy markets and successfully enter...
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...241 November 26, 2011 The Enron Accounting Fraud Scandal Enron was a Natural Gas Pipeline Company in Houston, Texas in 1985. It was formed as a result of merging of 2 natural gas Pipeline companies, Houston Natural Gas and the InterNorth. Enron was the epicenter of the life in Houston and was defined as the architectural rhythm of the Houston’s skyline. Enron was the innovator (market maker) in the energy trading business that provided a valuable service. Enron rise to 7th rank in the “Fortune 500” list of companies. There are many accounting scandals that have occurred throughout United States. Many scandals occur even without outsiders knowing anything that had occurred. Companies try their best to keep many of the accounting scandals quiet. There is political and business fraud happening and no one ever knows. Company’s wants to admit that there was a problem or that people within the company are not trust worthy. When executives in large corporations take scandals seriously, there is no way of keeping out of the spot light. Unfortunately, scandals are the tip of the iceberg. They represent visible failures and companies could really go down for such setbacks. Especially in Enron’s case during 2001, an accounting scandal could not be kept silent. It was one of the biggest accounting scandals in history and because of fraud, Enron suffered greatly. As the deregulation of electrical power markets were rising, Enron with the help of former chairman...
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...from the text. ANSWER I was overwhelmed while doing the internet news search to find an example of business that has abused its power. The search came up with so many examples that it made me realize that probably all the business abuse their position in some or the other way. There were many example to choose from but I chose “Corporate accounting scandal at Satyam “, which is also infamously called as India’s Enron. The reason why I selected this particular company is that I had my cousin brothers and sisters working for this company and this scandal affected our families in a big way. The background Scandals are like an iceberg, they represent the only visible catastrophic failure. Saytam Computers was founded By Mr. Ramalinga Raju who hailed form a traditional agriculture family of Andhra Pradesh, India in 1987 with a just 20 employees and converted the company got Public in 1992.The chairman of the company was the founder himself, Mr. Ramalinga Raju (Alias Raju) until January 7, 2009 when he resigned from the board of directors after admitting to corporate fraud. (Author HT correspondent, April, 9, 2015). The company offered consulting and information technology services to the various business sectors. The company had services in 66 countries and 53000 employees in 6 continents. It was listed on Bombay stock exchange, NSE & NYSE. The scam Ironically,...
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