...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, financial and compliance-related data that control the business while communication must ensure information flows down, across and up the organization. The lack of information and communication was evident in the movie where management...
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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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...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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...The movie centers on the Company Enron Corporation, which went Bankrupt in the year 2001 leaving hundreds of its staffs unemployed and thousands of its investors bereft. Enron Corporation was an American energy company based in Houston Texas. It was one of the leading energy companies in United States and was repeatedly named as “America’s most innovative company”. Enron was found to have used various accounting methods to misrepresent its financials. The company’s fraudulent activities brought a number of changes in the business of United States. The movie begins with a lady describing the company as one filled with arrogance, intolerance and greed which led to a gigantic fraud. Within no matter of time, the company was bankrupt. The top executives made millions by cooking the books and hiding all the materialistic information from the customers. The key players in the scandal were Chairman Kenneth Lay, CEO Jeff Skilling and CFO Andrew Fastow. Enron being the major corporate contributor for the George W. Bush election campaign stressed on deregulating the energy market. Ken Lay along with few Texas based oil companies shared a common view that deregulation is the key for success. In the early stage, traders of Enron were involved in speculating the prices of oil. While such speculations were risky, Enron seemed to own a winning streak during the initial stage. Top Executives had offshore personal accounts and transferred millions of dollars in profits. Few employees tried to...
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...------------------------------------------------- Advanced Strategic Management Enron By Anna Medvedeva The movie Enron which was based on the Enron Corporation in Houston, Texas is mainly about the company which followed institutionalized, systematic and creative planned accounting fraud for almost a decade. This resulted in Bankruptcy of the corporation in 2001 which was also is considered to be one of the biggest scandals in the US Market. The movie depicted was a little exaggerating when it comes to the economic dealings of the company in the market with its shares. The exploitation of Jeff skilling and Andrew Fastow who were well versed with burgeoning deregulated energy market, according to me are considered to be one of the important aspects of the fraud (as shown in the movie). Enron is now also considered to be the most willful corporate fraud in modern history. The few important points according to me that can be considered to be the reason of the company’s bankruptcy could have be avoided in order to save the company’s reputation, brand and value are: * The common business practices such as the limited liability special purpose entities which were established in number by Andrew Fastrow without the liability of these entities being shown in the annual accounting booklet could have been stopped. * As a foreign exchange program Enron involved in finding Energy Investors in India in 1992 due to the energy shortage problems. Enron enlisted a 20 year power purchase program with an...
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...Enron’s Impact The movie Enron: The Smartest Guys in the Room is an informative documentary exposing an unprecedented level of corruption in the business industry. This movie is based on a book written by Bethany McLean and Peter Elkind, who are also the primary interviewees in the film. This movie captures the tragedy in an incredibly detailed and emotion-jerking way, from the beginning of Enron to the end. Enron is well known to anyone familiar with economics, accounting, or business. For many, the name Enron evokes harsh feelings and leaves a sour taste in the mouth. For those who are not familiar with Enron, a few key terms might be helpful in understanding the type of business Enron was: Deceptive, Dishonest, Insolent, Corrupt, Blatant Disregard for Humanity, and Business Failure. Enron strategically and criminally manipulated market-to-market accounting, where projected earnings were allowed in the profits reported; however, market-to-market accounting was not necessarily the problem. The problem lay in the carefully crafted deceptive projections by top executives, which initially no one cared to question. This allowed Enron’s stock price to maintain elevated, even though the money was never there. Enron Oregon Corp. and Enron Corp., a Delaware corporation merged on July 11, 1997, surviving entity, Enron Corp. Recorded puppeteers at the time: Kenneth L. Lay, Chairman of the Board/Chief Executive Officer and Director/Principal Executive Officer; Richard A....
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...going to looking at the Enron Scandal to see how this company’s unethical behavior brought it to an end, to see who were the injured parties; to see how this company’s unethical behavior affected the company and society, and to see if the unethical behavior could have been avoided or resolved? According to the New York Times (2002), in early 2000, Enron, the natural gas pipeline company turned online phenomenon, held a daylong conference in Huston for Wall Street analysts and investors. The audience, packed with financial experts on the natural gas and power industries, was wowed by all the talk of Enron’s online capabilities, especially its rapidly growing business of electronically matching buyers and sellers of numerous commodities like electricity and even network bandwidth. To keep its mystique alive and its stock price growing, it set up partnerships where it could bury its losses, or generate imaginary revenues. Here's one of the more audacious examples, pieced together by The Wall Street Journal: Enron invested a bunch of money in a joint venture with Blockbuster to rent out movies online. The deal flopped eight months later. But in the meantime Enron had secretly set up a partnership with a Canadian bank. The bank essentially lent Enron $115 million in exchange for Enron's profits from the movie venture over its first 10 years. The Blockbuster deal never made a penny, but Enron counted the Canadian loan as a nice, fat profit (Enron-For-Dummies New York Times...
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...Re: Enron: The Smartest Guys in The Room Enron: The Smartest Guys in The Room is a movie about one of the US largest corporations, Enron, that went bankrupt in 2001. The movie starts with the story of Enron Corporation founder who was the chief executive officer of Houston Natural Gas, Kenneth Lay. Kenneth Lay established Enron in 1985. He had a close relationship with George Bush senior and his son, George W. Bush. While George W. Bush was Texas’ governor, he helped Kenneth Lay in subsidizing Enron International. Kenneth Lay successfully built natural gas power energy in East Texas. At that time, Enron stocks increased sharply from before. Enron involved in government energy market deregulations. Two years later, Enron committed in a scandal which known as oil scandal where two traders was betting in Enron stocks. Even though Enron stayed in stable share and obtain high profit, the bets put Enron in danger. Those two traders were fired by Enron after they gambled in Enron’s reserves. On the other hand, Kenneth Lay refused to admit his involvement in this act, but in fact he attended the meeting that discuss about oil scandal issue. Another scandal which is presented in the first part of this documentary film is Louis Borget, Enron’s CEO fraud in diverting company money into his personal account offshore. Auditors tried to uncover this problem and Kenneth Lay also encouraged him to keep making millions for Enron. However, Louis Barget was put in jail by the court for a year...
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...The Smartest Guys in the Room The movie called the smartest guys in the room, narrates the process that how does Enron Corporation, one of the world’s major electricity, one of the world's major electricity, natural gas, and communications companies, with claimed revenues of nearly $111 billion during 2000, went bankrupt eventually. In this film, the interviewers narrated the process of bankruptcy. This is a famous scandal in accounting area and there are lots of illegal behaviors related. We can learn a lot from this scandal in order to behave legally and avoid losing money. Facts: Two years after the corporation founded by Kenneth Lay, there were two traders began betting on the oil markets and transferred the money they earned to the offshore accounts. Instead of fire them, Lay encouraged them to use this unethical way to make money for the corporation. Finally the two traders were fired since they gambled away Enron’s fortune. Then Lay hired Jeffrey Skilling as the new CEO. They began to use mark-to-market accounting, which allowed them to report the potential profits instead of the actual profits. In addition, the new CEO’s aggressive management idea which fires the bottom fifteen percent employees gave the employees incentives to make the profits better than the actual profits. Skilling hired more people to help him make money for Enron Corporation. Under the bull market, executives pushed up the stock prices and cashed in their multi-million dollar options...
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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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...The Enron and Corporate Governance Company Enron Corporation Industry Energy Founded Omaha, Nebraska, USA (1985) Founder Kenneth Lay Employees approx. 22,000 (2000) Fate Bankruptcy, 2001 Website enron.com To write about Enron I was inspired by documentary movie “Enron: The Smartest Guys in The Room”. It explains in details how negligence and ‘cheating’ in corporate governance can lead to disaster for whole nation. The case of Enron became classical example of the company where executives can manipulate whole industry using ‘creative accounting’ and corporate governance. Enron bankruptcy is the greatest knowing corporate failure in the US from the time when the crash of numerous savings and loan institutions in the 1980s. This scandal showed the necessity for important improvements in accounting and corporate governance in the country, along with a tight control at the moral values in the culture of business in whole and of enterprises in the country. Actually, one can find a lot of reasons why this collapse happened. And there is the problem of interest between the two roles played by Mr Andersen, as auditor but also as consultant to Enron; the lack of attention shown by members of the Enron board of directors to the off-books financial entities with which Enron did business; and the lack of truthfulness by management about the health of the company and its business operations. In some ways, the culture of Enron was the primary cause of the collapse...
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...logo for Enron Corporation, and it was called “titled E”, but on the end it became the Crooked E and finally was auctioned off with other company assets. In April 2001, Fortune magazine called Enron, the 7th largest company in the USA and 6 months later Enron filed for bankruptcy Enron was born in the middle of recession in 1985, when Kenneth Lay (Economist and undersecretary at US interior dept), who was the CEO of the Houston Natural Gas Company, engineered a merger with Internorth Incorporated. Within six months of the merger, the CEO of Internorth Inc. Samuel Segner , resigned leaving Lay as the CEO of the newly formed company. Shortly after HNG/Internorth was renamed Enteron, a name which was later shortened to Enron in 1986. Those combined pipeline system was capable to distribute natural gas in entire country. Enron Wholesale Services cover Enron’s global wholesale business, and it is divided into 4 business unit Enron Energy Services was a business unit of Enron Coprporation. The purpose was to provide gas, electricity, and energy management directly to business and homes Global assets spread across Enron traded in more than 30 different products, which included the following Managements, who should have had a broader, long term perspective, were increasingly motivated to manage for short-term stock appreciation by mega grants of stock options and an attitude in the boardroom that any level of compensation is fine as long as the shareholders do well. When Enron started...
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...1. Five control issues in the enron movie are: • Control Activities – These are measures and policies that assist management and employees in carrying out directive and provide the occurrence of strong internal controls. Enron had poor internal controls. The transactions in the firm were not properly authorised. Mr. Fastow was involved tangling with the accounting records to make the company look good, so there was no accuracy and completeness in their accounting records. Segregation of duties was also a factor seeing that Andrew Fastow was Chief Financial Officer of Enron and also Managing director LJM and other offshore entities. • Risk Assessment – This is a way of determining how the internal and external sources of risks should be managed. Enron possessed no criteria on how to measure risk in the various projects they took on. Mr Skilling simply jumped at any opportunity he had to make money • Information and Communication – the lack of information and communication was evident in the movie where management did not provide financial reports publicly • Control Environment – Ken Lay being the CEO of Enron, made a statement that he is not responsible for things he did not know about. This is a clear demonstration of lack of good control environment as well as bad information and communication. • Monitoring – after designing and implementing a system of internal controls in a business 2. Enron engage in fraudulent financial in reporting...
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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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...Enron: The Smartest Guys in the Room Summary After a two and half hour checking dictionary and writing notes, I finally understood this movie. Indeed, it’s a great movie with a tragic and thought-provoking ending. As the movie, it is complicated to say that whose responsibility is the most. Inside Enron The U.S. Senate’s Permanent Subcommittee on Investigations listed high risk accounting, inappropriate conflicts of interest, extensive undisclosed off-the-books activity, and excessive compensation at top of the report findings (Permanent Subcommittee on Investigations, 2002). These unscrupulous operations are made by increasingly arrogant Enron. Therefore, it cannot be denied that Enron is demise by its own corporate culture. Meanwhile, its culture is affected by individuals’ actions which are closely linked with Kenneth Lay, former chairman and CEO of Enron, and Jeffrey Skilling, former CEO and COO. Ken Lay comes from a quite poor family. When he was a child he had to work some jobs such as newspaper delivery boy and lawn mower. I think it’s the major reason that he becomes an egomania who puts earnings before scruples. Actually, his condition makes me reminding President Lincoln whose also came from a poor family with enormous ambitions. Fortunately, Lincoln chose to do right things using his intelligence and abilities. However, Jeff Skilling had different situation. Back to his admission interview in Harvard Business School, the professor asked him...
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