...Enron Corporation Describe how Enron could have been structured differently to avoid such activities. Enron had a code of ethics policy in place but failed to implement it correctly (Bagley, C.E. & Savage, D.W., 2010). An enforced code of ethics policy, which includes required annual ethics training, is crucial in setting standards for employees in regards to their ethical behavior. It reminds all employees that they need to think about how they conduct themselves on the job. Here at NASA, we have a code of ethics policy and annual ethics training. NASA’s ethics training is a required course that all employees must take. Training informs all NASA employees of what is and is not acceptable behavior. Along with the enforcement of a code of ethics policy and training, Enron needed to be structured so that people could safely come forth if they witnessed any illegal or unethical actions. Of course, the Sarbanes-Oxley Act, which makes it easier for employees to come forth, did not pass until after the Enron scandal. Another way that Enron could have been structured differently was to have a better way to scrutinize the activities that went on at Enron. That is, structure the company so that daily activities could be closely monitored. A separate group could have been created to do some internal monitoring of the activities at Enron. The things I mentioned would have been helpful in developing a better culture at Enron and could have helped limit such activities. However...
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...ENRON: QUESTIONABLE ACCOUNTING LEADS TO COLLAPSE CRYSTAL RUFF GLOBE UNIVERSITY ABSTRACT This paper summarizes the article listed in reference that reported on the demise of Enron and the contributing factors that led to the financial downfall of a great company. The roles of the corporate culture, Enron’s financial staff, and even the chief financial officer are all to blame for the events that lead to the finality of the company that resulted in bankruptcy. While Enron boasted about being “The World’s Leading Company”, it was anything but that. The corporate culture of a company is supposed to describe how the stakeholders and employees, think, feel, and act. If Enron’s financial record is example of that, then the company should change the banner that hangs in the lobby at headquarters. CEO Skilling instituted a “rank and yank” system that would weed out lower ranked employees every six months. . (L. Ferrell, O.C. Ferrell, & Fraedrich, 2011). This alone caused a competitive environment amongst the employees. While he hoped this would help people reach their full potential, it ended up being a breeding ground for unethical practices within the company walls. Rather than a culture that focused on integrity and increasing profits for stakeholders, Enron was soon overcome with arrogance and the executives’ needs to fill their own pockets. Ignoring the rules was quickly integrated for the pursuit of profits and happiness, or so they thought. Enron’s bankers...
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...Enron: Questionable Accounting Leads to Collapse Your School Here Your Course Name Here Course Number Here Submission Date Here Your Professor Here Table of Contents Page Answers to Question 1 3 Answers to Question 2 3 Answers to Question 3 4 Conclusion 5 References 7 1. How did the corporate culture of Enron contribute to its bankruptcy? Highly effective leaders are great at obtaining common goals and objectives in highly effective and competent ways; regrettably for Enron, this was not the case. In the launching of the firm, Chairman Ken Lay and CEO Jeffrey Skilling were efficient in growing their company from a small gas and oil pipeline firm directly into a of the largest entities in its industry. As the company began to expand and prosper, the requirements of upper management became more assertive and disparate. Mr. Ken Lay was never fulfilled along with his efforts to obtain increasingly more monetary good gains; he implemented coercive power to shape his corporate culture. This power was most prevalently seen in the company’s employee program review process; shrewdly nicknamed “rank and yank” if employees of Enron ranked among the bottom 20% in regards to performance they would be conveniently railroaded out from the company (Ferrell, 2013, pp. 395-405). Rank and Yank is a phrase used to describe a process by which a company...
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...Enron Jesus malverde BUS 500D September , 2011 unknown Enron Enron, a company that went from one of the top companies in the 1990s to taking a plunge straight to the bottom in the early 2000s. The greed and pride of Enron’s top executives is what ultimately made Enron file for bankruptcy. Enron established ethical codes, but never followed. Employees at Enron were given instructions to push boundaries, increase revenues, and make Enron look eminent (McLean & Elkind, 2005). Establishing the mark-to-the-market accounting method was the beginning of Enron’s downfall. Then they started to lose control of their corporate governance, forgetting about the rules that they had put in place. They began to alter their financial statements to make it look as if they were being profitable when in reality they were slowly going more in debt. Unethical behavior runs many companies into the ground, Enron was one of the biggest companies uncovered. The Reason Enron began its downfall when Jeff Skilling decided to implement the Mark-to-the-Market accounting practice. The Mark-to-the-Market accounting practice is generally only used by companies who sell securities, not those focusing on projects (McLean & Elkind, 2005). This practice allowed Enron to add revenue when their projects were complete. They could add revenue by what they believed their profits were going to be in the future. If the plant were to last 20 years and expected to make $1 million per year they could add the total...
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...The Sarbanes-Oxley Act of 2002 Abstract This paper addresses financial analysis standards legislated in the Sarbanes-Oxley Act of 2002 (SOX). The focus will be on how the legislation enhanced the role of auditing and auditing firms, the impact of whistleblower legislation, and the recent Supreme Court decision. The paper attempts to show that though there continues to be opposition to SOX’s financial reform legislation, there is a case to be made in support of SOX. The research relies on historical data, such as the Enron scandal, and the recent decision by the United States Supreme Court decision that deems SOX as constitutional, to support that legislation is a necessary requirement in today’s global corporate environment, in which some of the largest corporations have proven that, left to their own devices, they will gravitate toward corporate malfeasance. The Sarbanes-Oxley Act of 2002: WorldCom. Enron. Adelphia. Global Crossing. What do all these companies have in common? They will always be synonymous with the following: financial fraud, corporate malfeasance, internal corruption, and the reason behind the passage of the Sarbanes-Oxley Act of 2002 (SOX). Not since the Crash of 1929 and the subsequent passage of the Securities Act of 1933 and the Securities Exchange Act of 1934 (Bumgardner, 2003, para. 2), had the country seen such a push for financial reform. Triggered by investigations into corporate fraud by some of the largest and most successful corporations...
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...The Fall of Enron 1. Why was Enron such an admired company prior to 2000? What innovation do they bring to the table? Be specific and support your statement with concrete information. Prior to the year 2000, Enron Company, established in the mid-80s, caused the admiration worldwide because of its fast rise of revenue both in the local and international stock market in a short period of time. Enron’s operating income in the year 2000 was stated in $100.7 billion and its after-tax net income was reported in $979 million (Palepu & Healy, 2013). The enterprise’s business model was based on energy-trading, centered in the deregulated energy marketplace, and in its significant investments in several large-scale commodities and other broad different services. Enron promoted natural gas and electrical energy. It also provided energy and other merchandises and it supported with risk management and financial services to consumers on a global level. Considered for six consecutive years, since mid-90s, America’s most innovative business (Ellison, 2013), Enron bring to the table a transformational initiative in the course of a period of fast business model changes in the western hemisphere. In any different market it admitted, the company provided not just a new creation and service concepts, but also a fresh business model pathways. In reference to managerial quality and talent Enron was constantly classified close the best of everybody’s line up, employee capacity, and excellence of services...
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...material false statement, knowledge that the statement was false when it was spoken, reliance on the false statement by the victim, and damages resulting from the victim’s reliance on the false statements (pp. 2-3). Negligence within a company, also referred to as unintentional fraud, implies a party not living up to minimal standards of care (Kranacher, Riley & Wells, 2011, p. 61). When an employee commits an honest mistake without the intention of deceiving the employer or gaining an advantage over others is considered negligence. Negligence has five legal elements: duty, breach, cause in fact, proximate case, and damages (Kranacher, Riley & Wells, 2011, p. 61). All elements need to be present for negligence to be considered. In 2001, Enron became the center of one of the biggest fraud scandals of the decade. The executive officers Kenneth Lay, Andrew Fasto, Jeffrey Skilling including the accounting firm Arthur Andersen committed the biggest financial fraud against its employees and stakeholders. Enron’s officers drove the company into bankruptcy causing thousands of employees to lose their jobs as well several billions of dollars in lost retirement accounts (Kranacher, Riley & Wells, 2011, p. 4). Fraud can be classified into two categories: fraud committed against an organization and fraud committed by an organization against its stakeholders (Kranacher, Riley & Wells, 2011). Employee embezzlement is the most common fraud committed against an organization. Embezzlement...
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...in Business Kathryn Sumner PHL/323 November 30, 2015 Chuck Thompson Current Ethical Issue in Business Enron had one of the biggest ethical scandals of the 21st century. The company’s unethical practices was the downfall of the company. Let’s start with a little bit of history about the company. Enron was formed by the merging of two different companies, Houston Natural Gas and InterNorth in 1985. Kenneth Lay was the chairman and Chief Executive Officer of Enron. Lay hired Jeffery Skilling and he developed a staff of executives who used accounting loopholes, special purpose entities, and poor financial reporting to hide billions of dollars in debt from deals and projects that failed (Biography.com, 2015). The impact to the company is very detailed and will be discussed throughout this paper. At first Enron was not financially stable for many years but it was able to survive. After the deregulation of electrical power markets in 1988 Enron quickly became a thriving company subsequently it went from an energy delivery to energy broker. With deregulation this allowed Enron to profit from the exchange and generating income from buying and selling companies. Over time the contracts became more diverse and more multifaceted. Enron’s services evolved and so did the culture of the company (Sims & Brinkmann, 2003). Skilling pushed more aggressively and he made Enron one of the biggest wholesaler of gas and electricity. They made $27 billion dollars in only four months. Skilling...
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...------------------------------------------------- ------------------------------------------------- ------------------------------------------------- <Faculty Name> <Grade Earned> <Writing Score> <Date Graded> Case Study: A primer on Sarbanes-Oxley Leona M. Anderson Dr. Jennifer Scott Northcentral University A Primer on Sarbanes-Oxley Introduction The problem to be investigated is whether Sarbanes-Oxley has helped to improve public trust in the markets and reduce non-ethical practices in business. The Sarbanes-Oxley Act of 2002 (SOX) was passed by the 107th Congress on July 30, 2002 (Sarbanes-Oxley, 2002) to provide protection to investors and shareholders as a result of fraudulent activities by some U.S. Corporations such as Enron, Tyco, WorldCom, and Adelphia, as well as other public companies (Jennings, 2012; Scott & Nganje, 2011). SOX introduced major regulatory changes which affect financial practice and corporate governance; and compliance is mandatory for ALL organizations (Guide to Sarbanes-Oxley, 2006). SOX is actually Public Law 107-204 and it is divided into eleven different parts, each one addressing a different ethical issue or activity of corporate practice (Sarbanes-Oxley, 2002). SOX has other more formal names such as “the Investor Confidence Act, the Public Accounting and Corporate Accountability Act, Public Company Accounting Reform and Investor Protection Act of...
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...MEMORANDUM UNIVERSITY OF PHOENIX DATE: TO: FROM: RE: Bumgardener, L. (n.d.). Retrieved from http://gbr.pepperdine.edu/2010/08/reforming-corporate-america/ ARTICLE SYNOPSIS This article discusses the Sarbanes-Oxley Act and how it was formed. Sarbanes-Oxley Act is named after U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH) who sponsored it. Under the guidelines of Sarbanes-Oxley Act, top management must now individually certify the accuracy of financial information. The need of this act came about after the markets crash in 1929. Congress began looking into corporate fraud in the 1930’s and began the Securities Act of 1933. This law was viewed insufficient; in just one year congress passed the Securities Exchange Act of 1934. This was viewed to be good enough until corporations began to get caught in fraud again like, Enron in 2001. So, in 2002 the Sarbanes-Oxley Act was passed to help get a handle on new corporate fraud. LEGAL ISSUE The article pointed out how a business practice of the late 90’s and early 00’s lead to stricter federal regulations and auditing. Enron for one was borrowing money to cover loss and hiding funds in offshore accounts; this was all too raised their stock value. Sarbanes-Oxley Act is the response to this type of businesses and helps the government to keep a handle on it. MANAGERIAL PERSPECTIVE Discuss how the legal issues affect business. For example, could the problems have been avoided? Explain...
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...legislative act that is considered the most sweeping piece of legislation in accounting governance since the Securities Act of 1934. This relatively new act changed the way companies reported their financial information, created a way for investors to trust companies again after a large scandal, and affects management incentive plans to prevent further acts of fraud. The Sarbanes-Oxley Act, or SOX as it is commonly abbreviated to, was a reaction to a major corporate and accounting scandal; the most recognizable of those companies included in the scandal were Enron, Tyco International, Adelphia Peregrine Systems, and WorldCom. In Enron’s example, they used loopholes to hide billions of dollars in debt that the company had incurred through failed deals and projects. The falsified financial documents convinced investors that nothing was astray and even increased the company’s stock price. Once the fraud was found, the investors sued Enron when their stock price dropped to less than one...
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...Information Communication, Sunchon Univerity, Sunchon, Korea 3 Fumate Inc., Daejeon, Korea rosslin_john@yahoo.com, secho@sunchon.ac.kr, yslee@fumate.com, taihoonn@empal.com Abstract The Sarbanes-Oxley (SOX) Act is a United States federal law enacted on July 30, 2002 in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. This paper discusses the effects of Sarbanes-Oxley (SOX) Act on corporate information security governance practices. The resultant regulatory intervention forces a company to revisit its internal control structures and asses the nature and scope of its compliance with the law. This paper reviews the implications emerging from the mandatory compliance with Sarbanes-Oxley (SOX) Act. Issues related to IT governance and the general integrity of the enterprise are also identified and discussed. Industry internal control assessment frameworks, such as COSO and COBIT, are reviewed and their usefulness in ensuring compliance evaluated. 1. Introduction Accounting scandals at some of the big corporations like Enron, HealthSouth, Tyco and WorldCom had a devastating impact on investor confidence. Clearly, it was possible to engage in frauds of such magnitude because of the inability of auditors to detect early signs of such possibilities. This paper reviews the impact of legal controls on Information Technology (IT) governance practices, especially in the case of SOX...
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...An Enron Jury Free of Grudges? Easy, Judge Says! HOUSTON, Jan. 29, 2006 Chances are that in this city's pool of 2.3 million registered voters, there are at least 16 people who are not angry about the implosion of Enron, the largest business collapse in history. But finding them in a single day could be a challenge.! That has not deterred Judge Simeon T. Lake III of Federal District Court, who will begin the much-anticipated criminal trial of the former Enron chief executives Kenneth L. Lay and Jeffrey K. Skilling on Monday.! Judge Lake said in court on Thursday that he expected to choose a panel of 12 jurors and 4 alternates from 100 prospective members in one day. After examining responses to the jury questionnaires, Judge Lake indicated that he felt they did not show evidence of prejudice against the defendants. "I've been impressed by the apparent lack of bias or influence from media exposure," he said.! The lawyers defending Mr. Lay and Mr. Skilling have contended for months that finding impartial jurors in Houston would be difficult, if not impossible. But the judge has rejected two requests to move the trial outside of Houston, where Enron was based, and has repeatedly denied pleas by the defense lawyers to allow them to question individual jurors during the final selection process, called voir dire.! The defense lawyers say they are deeply troubled by responses to jury questionnaires, which came back with mostly negative comments about Enron and the defendants. Many Houstonians...
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...Rohami Shafie Zaleha Othman Wan Nordin Wan Hussin Faudziah Hanim Fadzil School of Accountancy Universiti Utara Malaysia Sintok, 06010 Kedah Malaysia. Abstract Cooking the books refers to fraudulent accounting activities undertaken by a business to falsify its financial statements. Thus, the objectives of this study are to investigate what the cooking-the-books activities carried out by businesses consist of, how they conduct them, and what the impact is on the business and its shareholders. The case study sample companies are two Malaysian companies that had received various awards from reputable third-party organizations. On the other hand, the activities undertaken in both companies have caused them to be labelled as Malaysian mini Enrons. We employ a qualitative research methodology as most prior research employs a quantitative methodology to investigate the determinant factors in businesses’ cooking-the-book activities. The result of the study shows that the managers have used their positions, prior experience, and regulatory loopholes in their activities. Furthermore, the financial report restatement and higher reported earnings are the early warning signals of their activities. As a result of this, the Malaysian Securities Commission has revised the corporate governance code, and among others incorporated the Audit Oversight Board, known in the US as the Public Company Accounting Oversight Board. Key words: Cooking the Books, Financial Statement Fraud, Earnings Management...
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...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 (D-MD) and U.S. Representative Michael G. Oxley (R-OH). Technology Investing The mid 1990s saw an...
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