...University of Technology, Jamaica School of Business Administration Internal Auditing Article Review The Smartest Guys in the Room Tutor: Ms S. Bewry Student: Rajik Brown ID#: 0904827 1. To identify least five (5) control issues in the movie using the C.R.I.M.E. abbreviation from the Committee of Sponsoring Organisation of the Treadway Commission (COSO) framework was used. C- Control Activities are procedures and policies that aid management and employees in carrying directives and provide the presence of strong internal controls. ENRON possessed poor controls. * All transactions of a firm must be properly authorised meaning they must exist or occur e.g. * There must be accurate and complete accounting records. ERON’s CFO, Mr. Fastow was involved in tangling the accounting records and creative accounting to make the company look profitable. * Segregation of Duties must exist e.g. Andrew Fastow was CFO for ENRON but also the managing director for LJM and other offshore entities. R- Risk Assessment is a prerequisite for determining how the internal and external source of risks should be managed. ERON possessed no criteria on how to measure risks in the various projects they took. Management (Mr Skilling) simply jumped at any opportunity he had to make money. Mr Skilling quoted “..we like risks, because you make money from risks”. They invested in multi-million natural gas plants that failed. I-Information are simply reports and other operational...
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...INTERNAL AUDITING MOVIE REVIEW: Enron Movie: The Smartest Guy in the Room Tutor: Ms. Bewry March 29, 2014 Ashley Johnson-Blake ID #100426 Review Questions 1. Identify at least five (5) control issues in the movie using the Committee of Sponsoring Organization of the Treadway Commission (COSO) framework as a guide. According to COSO, the five control issues are concerned with the control environment, risk assessment, control activities, information and communication and monitoring. Based on the documentary several control issues were observed. They were: * During the Enron oil scandal aka the Valhalla scandal there was significant misappropriation of monies. In this particular situation instead of reducing risk lay encouraged traders to keep gambling more. Traders gambled away all of Enron’s reserves and this was covered up by Muckleroy who was able to bluff the market by acting quickly. * Ken Lay didn’t listen to auditors’ reports that the two rogue traders should be fired, this demonstrated one angle of lack of a good management style and monitoring. Instead lay read the report and read his budget and estimated how much the rogue executives made and if they were fired what he could lose. With all of this in mind lay did not fire the executives and had been described as a guy that puts earnings before scruples rather than reacting to the dishonesty in front of him. * Ken Lay as CEO of Enron made the statement that he is not responsible for things he didn’t...
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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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...significance to Enron. When the President of Enron, Kenneth Lay, hires new CEO Jeffrey Skilling, a very energetic and a “dreamer” who joins Enron on the condition that they utilize mark-to-market accounting, allowing the company to book potential profits on certain projects immediately after the deals are signed. To keep its stock price going up par example Enron began a venture that might make $50 million 10 years from now, it could claim the $50 million as current income. However, this projects turn out to be successful. This gives Enron the ability to subjectively give the appearance of being a profitable company even if it isn't. 2. Describe the Enron culture. The culture of Enron was very competitive and all the employees had the same attitude of their bosses. Par example Jeffrey Skilling imposes his idea on Enron by establishing a review committee that grades employees and annually fires the bottom fifteen percent. This creates a highly competitive and brutal working environment. 3. What is Andy Fastow's significance to Enron? Andy Fastow’s was the Enron’s CFO. He helped the company, hiding the losses with a “Tom Ponzi’s scheme”. One of Enron tactic was to create phony offshore corporate shells and move their losses to those companies, which were off the books. The film shows a schematic diagram tracing the movement of debt to such Enron entities. Two of the companies are named "M. Smart" and "M. Yass." 4. What is Sherron Watkins significance to Enron? She was...
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...1. Explain the concept and rationale behind mark to market accounting and it's significance to Enron. Mark to market accounting allowed Enron to book potential profits on the day it was signed. Regardless of how little cash came through the doors. To the outside world, Enron’s profit was whatever Enron said it was. 2. Describe the Enron culture. The work environment of Enron was aggressive. This was due to Jeff Skilling’s strong belief in survival of the fittest. Skillings implemented a performance review committee (PRC), where employees were graded from a 1-5. Skillings believed that roughly 10% of people had to be a 5, which meant that they had to be fired. The traders of the company were the most aggressive. One of the speaker said that if he was on his way to his boss’s office to discuss compensation, he would stomp or crush someone else’s throat if that meant his compensation would double. The Enron culture looked up to Jeff Skillings. One part of the film stated that when Skillings got Lasik, everyone got Lasik, indicating that Skillings was a figure to replicate. 3. What is Andy Fastow's significance to Enron? Andy Fastow was the CFO of Enron. The documentary described Fastow’s job as covering up the fact that Enron was becoming a “fantasy land.” Fastow had to report profits despite the fact the Enron was billions of dollars in debt. He hid debts in companies where investors couldn’t see it. Many of the companies had exotic names. One of the companies...
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...Running head: IMPORTANCE OF ETHICS IN ACCOUNTING Importance of Ethics in Accounting Everest University Importance of Ethics in Accounting Accounting fraud is common but is not as trivial as the common cold; a typical organization loses annual revenues of nearly 5 percent to fraud. In addition, almost one-quarter of reported fraud is exceeding $1 million dollars. The accounting industry is constantly growing and changing. Consequently, difficult decisions have to be made every day. While accountants follow a simple code of conduct; nevertheless, due to the infamous scandal of Enron, the Sarbanes-Oxley Act of 2002 was constructed to reestablish confidence in the public marketplace. The importance of ethics and integrity are highly significant to individuals in this profession. In fact, ethical behavior in accounting is described as “societies accepted standards of moral behavior that is behaviors as right rather than wrong” (Nickels, McHugh, & McHugh, 2013, p. 91). Therefore, accounting as a whole plays a significant role in society and business. At one time, society considered professional accountants to have the highest standard in ethical and moral conduct. While maintaining accurate and truthful statements is an essential part of financial reporting; therefore, as a society as a whole it is essential that a professional accountant fully understand the importance of ethical values. One unquestionably problematic misconception is that ethics consist of...
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...the integrity of daily life. Many professions have their own code of ethics. Honest reporting is not exempt from such ethical and legal standards. One’s lively hood depends on decisions made in the business world. Ethics is something that is very important to have especially in the business world. Ethics is the unwritten laws or rules defined by human nature; ethics is something people encounter as a child learning the differences between right and wrong. Griffin briefly comments on Enron as n ethical issue. He states he uses his scholarly writings to look for answers to some of those questions. In a recent commentary for the Connecticut Law Review, he used the Enron crisis to examine whether there is something wrong with legal ethics. According to Griffith, the field of legal ethics has "failed to produce a normative principle capable of constraining the conduct of business lawyers in the current corporate scandals." In 2001, Enron was the fifth largest company on the Fortune 500. Enron was also the market leader in energy production, distribution, and trading. However, Enron's unethical accounting practices have left the company in joint chapter 11 bankruptcy. This bankruptcy has caused many problems among many individuals. Enron's employees and retirees are suffering because of the bankruptcy. Wall Street and investors have taken a major downturn do to the company's unethical practices. Enron's competitors and the industry have also both been affected by the bankruptcy...
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...Ethical Culture Project PART 1: Enron displayed all four cultural dimensions which are: high-risk taking, outcome orientation, aggressiveness, and low/no people orientation as a company. Kenny Lay, who was the CEO and Chairman from 1985-2002, displayed high-risk taking during the Vahalla scandal. He had two oil traders, Louis Borget and Tom Mastroeni that would make bets for Enron on whether the price of oil would rise or fall. This is a risky market because you can lose ten times your original investment, and it was hard to make the amount of money legitimately that they were at the time. Borget and Mastroeni were gambling with Enron’s money. Jeff Skilling organized high-risk company trips where he would plan dangerous activities that Enron employees would participate in. Andy Fastow, Enron’s chief financial officer, wanted to please his boss, Skilling, so he tried to increase Enron’s stock up even though they were 30 million dollars in debt. He got hundreds of special companies to prop up Enron’s stock by making Enron debt disappear. To outside investors it looked like cash was coming in, but Enron was hiding their debt in Fastow’s companies so investors couldn’t see it. Fastow was participating in outcome orientation, and Skilling encouraged him to do so. Skilling created a very aggressive company culture for Enron by implementing a performance review committee (PRC) that people were graded a one to a five and 10% people had to be a five and if they were they would be fired...
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...THE ETHICAL AND LEGAL ENVIROMENTS OF BUSINESS Instructor: Mr. Bruce Rawding Enron: The Fall In 2001, America’s largest corporate bankruptcy hit Wall Street. A company that provided for many stock market traders, collapsed in twenty four days and there was no way to retrieve lost fortune. Not only traders but the company’s own loyal/faithful employees had a big share in the losses as well. A massacre that was quiet well planned and then executed here, in our great corporate America. Many say it was the result of greedy money minded immoral people, others do not understand complicated transactions and then there are those who blame the government and law makers. At the end of it all, no matter what caused it, people’s lives was destroyed, retirement plans were washed away and most of all the system was toyed with. There were many ethical codes set by our corporate minds, which were either neglected or taken advantage of. This paper is going to analyze the movie Enron: the smartest guys in the room by Magnolia Pictures and also try to better understand the ethical issues that lead to the collapse of the largest natural gas merchant in North America. A firm ethical conduct can be analyzed by first analyzing its key players and how their personal ethic conduct played a major role in sheltering this fraudulent company (CEO, president, board of directors). Kenneth Lay founded Enron in 1985 (Enron: the smartest guys in the room) by merging the Houston Natural Gas company with InterNorth...
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...reforms since the time of Franklin D. Roosevelt” by President George W. Bush when he signed it into law. The act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the law. The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure. The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco, WorldCom and Arthur Andersen LLP. These scandals cost investors billions of dollars when the share prices of affected companies collapsed and shook public confidence in the nation's securities markets. The Sarbanes-Oxley Act of 2002 and Its Effect on the Accounting Profession Enron, World Com and Arthur Andersen LLP, three names that have long become synonymous with deceptive accounting practices and lack of transparency, were but a few of the catalysts to the hastily enactment of the Sarbanes-Oxley Act of 2002. More commonly known as SOX, it was enacted on July 29, 2002 and signed into law on July 30, 2002 by President Bush. It’s also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House). Sarbanes-Oxley’s named after sponsors U.S. Senator Paul Sarbanes...
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...The Enron scandal Tobias Pavel 910422 Mylene Encontro 850224 Chalmers University of Technology Finacial Risk, MVE220 Examiner: Holger Rootzén 2012-12-02 Göteborg This report has been written and analyzed by both group members jointly. Abstract From the 1990's until the fall of 2001, Enron was famous throughout the business world and was known as an innovator, technology powerhouse, and a corporation with no fear. The sudden fall of Enron in the end of 2001 shattered not just the business world but also the lives of their employees and the people who believed that their soar to greatness was genuine. Their collapse was followed by a series of revelations on how they manipulated their success. Introduction Enron shocked the world from being “America’s most innovative company” to America's biggest corporate bankruptcy at its time. At its peak, Enron was America's seventh largest corporation. Enron gave the illusion that it was a steady company with good revenue but that was not the case, a large part of Enron’s profits were made of paper. This was made possible by masterfully designed accounting and morally questionable acts by traders and executives. Deep debt and surfacing information about hiding losses gave the company big problems and in the late 2001 Enron declared bankruptcy under Chapter 11 of the United States Bankruptcy Code. Many factors affected Enron's surge to the top and its sudden fall. In this report we will discuss and present what we think...
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...chak de phattey The Call for Participation for Wikimania 2009 has been released. Submit your presentations before April 15. [Hide] [Help us with translations!] Enron scandal From Wikipedia, the free encyclopedia Jump to: navigation, search Enron Corporation Type Defunct / Asset-less Shell Founded Omaha, Nebraska, 1985 Headquarters Houston, Texas, United States Key people Kenneth Lay, Founder, former Chairman and CEO Jeffrey Skilling, former President, CEO and COO Andrew Fastow, former CFO Rebecca Mark-Jusbasche, former Vice Chairman, Chairman and CEO of Enron International Stephen F. Cooper, Interim CEO and CRO John J. Ray, III, Chairman Industry formerly Energy Revenue $101 billion (in 2000) Employees approx. 22,000 in 2000 approx. 4 as of 2008. Website http://www.enron.com/ The Enron scandal was a financial scandal involving Enron Corporation (former NYSE ticker symbol: ENE) and its accounting firm Arthur Andersen, that was revealed in late 2001. After a series of revelations involving irregular accounting procedures conducted throughout the 1990s, Enron was on the verge of bankruptcy by November 2001. A white knight rescue attempt by a similar, smaller energy company, Dynegy, was not viable. Enron filed for bankruptcy on December 2, 2001. As the scandal was revealed, Enron shares dropped from over US$90.00 to less than 50¢. Enron's plunge occurred after revelations that much of its profits and revenue were the result of deals with special...
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...product safety warning on the labels; they are only looking at who and what athlete and movie star promotes this latest product. For example, Pepsi, and always uses high profile athletes or famous people to promote its product. These ads provide a sublime message. These Ads are gear to get the consumer to buy their product. In order for me to be like LeBron James, I have to drink Gatorade. There has been a major shift over the last couple of years in product safety. According to Chandra, “product safety has become a major problem for businessmen, consumers and the government” (Chandran, 1979). Advertising can be both influential and persuasive. It presents an issue of product safety. The Consumer Product Safety Commission threatened to ask Congress to give it greater authority. Advertising is protected under the First Amendment, but there has to be limits. “While advertising does not directly contribute to all product related accidents, it does, inadvertently, have the power to promote unsafe behavior” (Chandran, 1979). Advertising indirectly contributes to the problem of consumer product safety. “Advertisers and advertising agencies should therefore do more to educate consumers in a safe and prudent use of products that are potentially hazardous for several reasons” (Chandran, 1979). There should be some guidelines for product safety in adverting policies. The National Advertising Review Board presented its findings, and gave some positive ideas that will influence the safety...
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...product safety warning on the labels; they are only looking at who and what athlete and movie star promotes this latest product. For example, Pepsi, and always uses high profile athletes or famous people to promote its product. These ads provide a sublime message. These Ads are gear to get the consumer to buy their product. In order for me to be like LeBron James, I have to drink Gatorade. There has been a major shift over the last couple of years in product safety. According to Chandra, “product safety has become a major problem for businessmen, consumers and the government” (Chandran, 1979). Advertising can be both influential and persuasive. It presents an issue of product safety. The Consumer Product Safety Commission threatened to ask Congress to give it greater authority. Advertising is protected under the First Amendment, but there has to be limits. “While advertising does not directly contribute to all product related accidents, it does, inadvertently, have the power to promote unsafe behavior” (Chandran, 1979). Advertising indirectly contributes to the problem of consumer product safety. “Advertisers and advertising agencies should therefore do more to educate consumers in a safe and prudent use of products that are potentially hazardous for several reasons” (Chandran, 1979). There should be some guidelines for product safety in adverting policies. The National Advertising Review Board presented its findings, and gave some positive ideas that will influence the safety...
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...Chapter 2 THE AUDIT MARKET Revision: 11 September 2012 2.1 Learning Objectives After studying this chapter, you should be able to: 1. Distinguish between different theories of audit services including agency theory. 2. Understand drivers for audit regulation. 3. Understand the role of public oversight. 4. Distinguish between different audit firms. 5. Identify some current developments in the audit market. 6. Portray the series of industry codes of conduct and guidance 2.2 Introduction The emergence of today’s auditors happened during the Industrial Revolution that started in Great Britain around 1780. This revolution led to the emergence of large industrial companies with complex bureaucratic structures and, gradually, the need to look for external funds in order to finance further expansion: the separation between capital provision and management. Both developments resulted in demand for the services of specialists in bookkeeping and in auditing internal and external financial representations. The institutionalization of the audit profession was then merely a matter of time. Management Controls Operations and Communications Management has control over the accounting systems and internal controls of the enterprises that auditors audit. Management is not only responsible for the financial and internal control reports to investors, but also has the authority to determine the precise nature of the representations that go into those reports. However, management...
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