...Enron Company Ethical Issues Case Analysis Format I. Time Context After the scandal revealed on Enron Corporation on October 2001 up until in present time (2014) it is still discussed. II. Point of View Enron was founded in 1985, and as one of the world's leading electricity, natural gas, communications and pulp and paper companies before it bankrupted in late 2001. 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 dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. Although Enron went bankrupt and disappeared ten years ago, the impacts it has made on the ethical standards never faded. It took Enron 16 years to go from about ten billion dollar assets to more than sixty-five billion dollar assets, and took twenty-four days to go bankrupt. (McLean & Elkind, 2004) III. Statement of the Problem The said company projected itself as a highly profitable, growing company – an image which quickly turned out to be an elaborate mistrurth. Enron’s statements about profits were shown to be untrue, with a very big debts concealed so that they didn’t show up un the company’s accounts. Moreover, the company was seen to have been extraordinary active in political lobbying – with large numbers of legislators close to the company in one way or another. This fact had not been enough to save it, but raised...
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...Running Head: Is Ethics The Main Reason For Accounting Scandals? Is Ethics The Most Important Reason Behind Years of Accounting Scandals? Joshua A. Williams DeVry University Is Ethics The Main Reason For Accounting Scandals? Ethics: Is It The Most Important Reason Behind Years of Accounting Scandals? Ethics is a term that refers to a code or moral system that provides criteria for evaluating right and wrong (Spiceland, Spe, Tomassini, 2007). An ethical dilemma is a situation in which an individual or group is faced with a decision that tests this code. Many of these dilemmas are simple to recognize and resolve. For example, have you ever been tempted to call your professor and ask for an extension on the due date of an assignment by claiming a fictitious illness? Temptation like this will test your personal ethics. The direct issues when dealing with ethics is that it cannot be measured or quantified it is intangible almost to a fault. A person’s ethical background can be affected by all types of outside forces such as familial background, financial status, and educational backgrounds as well to name a few. Ethical codes are informative and helpful. However, the motivation to behave ethically must come from within oneself and not just from the fear of penalties for violating professional codes (Spiceland, Sepe, Tomassini, 2007). There is specific analytical model which gives a sequence of seven steps that provide a framework for analyzing ethical issues. These...
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...The Enron Scandal Case Study FACTS OF THE CASE Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Enron's predecessor was the Northern Natural Gas Company, which was formed during 1932, in Omaha, Nebraska. It was reorganized during 1979 as the main subsidiary of a holding company, Inter-North which was a diversified energy and energy related products company. During 1985, it bought the smaller and less diversified Houston Natural Gas company > Employed approximately 20,000 staff > One of the world's major electricity, natural gas, communications, and pulp and paper companies. > Revenues of nearly $40.1 billion. Enron was almost universally considered one of the country's most innovative companies. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses. Enron’s Line of Business Enron was originally involved in transmitting and distributing electricity and natural gas throughout the United States. The company developed, built, and operated power plants and pipelines while dealing with rules of law and other infrastructures worldwide. Enron owned a large network of natural gas pipelines, which stretched ocean to ocean and border to border. Enron Corporation represented one of the largest fraud scandals in history. As a result of the fraud investigations, the company was forced to file for bankruptcy in December 2001. Enron was “a provider...
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...url=http://search.proquest.com/docview/1523896341?accountid=28125 Main issue of the article This paper is about unethical business behavior and the factors that can encourage one to participate in it. Ethics refers to standards of wrong or right in relation to responsibilities, benefits or obligations to others and society in general. They set standards or guidelines for acceptable beliefs and interactional behavior. The Enron, WorldCom and Tyco financial debacles devastated many investors and employees and brought a lot of unwanted attention and questions about business ethics. The improprieties in their accounting books revealed to the world the crooked unethical accounting practices practiced by some seeming reputable organizations. Wondering why the Enron and WorldCom executives got involved in the scandal, the author of this article asserts that “a conjunction of motive, means, and opportunity creates ‘an ethical hazard’making questionable executive decisions more probable” (Pendse 2012). He continues to conclude that corporate unethical actions can be minimized by creating a process to identify and remove such ethical hazards, and by appointing a qualified individual to monitor and prevent the unethical behavior before it...
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...Sherron Watkins—Revelations of a Letter Who Is Sherron Watkins? Sherron Watkins gained fame as the so-called “whistle-blower” in the Enron accounting scandal. “Enron hid billions of dollars in debts and operating losses inside private partnerships and dizzyingly complex accousnting schemes that were intended to pump up the buzz about the company and support its inflated stock price.” Watkins wrote two letters, one anonymously, to Enron’s chairman, Kenneth Lay. In those letters she “exposed top officials—perhaps including Lay himself—who for months had been trying to hide a mountain of debt, and started a chain reaction of events that brought down the company.” Watkins had a “flair for numbers” and the training and expertise to recognize a “funny accounting scheme.” She received an accounting degree from the University of Texas at Austin in 1981 and a master’s degree in accounting in 1982, after which she went to work for Arthur Andersen’s Houston office. Watkins transferred to Andersen’s New York City office and then subsequently returned to Houston in the early 1990s to work for Enron. Eight years after joining Enron, Watkins had risen to the position of vice president for corporate development. According to one retrospective account of the Enron scandal, Watkins “understood that something very bad was going on, something everyone else seemed to think was perfectly okay, and that public revelation would be disastrous.” Somehow Watkins “was able to escape the groupthink...
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...Sherron Watkins—Revelations of a Letter Who Is Sherron Watkins? Sherron Watkins gained fame as the so-called “whistle-blower” in the Enron accounting scandal. “Enron hid billions of dollars in debts and operating losses inside private partnerships and dizzyingly complex accousnting schemes that were intended to pump up the buzz about the company and support its inflated stock price.” Watkins wrote two letters, one anonymously, to Enron’s chairman, Kenneth Lay. In those letters she “exposed top officials—perhaps including Lay himself—who for months had been trying to hide a mountain of debt, and started a chain reaction of events that brought down the company.” Watkins had a “flair for numbers” and the training and expertise to recognize a “funny accounting scheme.” She received an accounting degree from the University of Texas at Austin in 1981 and a master’s degree in accounting in 1982, after which she went to work for Arthur Andersen’s Houston office. Watkins transferred to Andersen’s New York City office and then subsequently returned to Houston in the early 1990s to work for Enron. Eight years after joining Enron, Watkins had risen to the position of vice president for corporate development. According to one retrospective account of the Enron scandal, Watkins “understood that something very bad was going on, something everyone else seemed to think was perfectly okay, and that public revelation would be disastrous.” Somehow Watkins “was able to escape the groupthink...
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...University of Technology, Espoo. CHAPTER 11 Reasons of Systemic Collapse in Enron Matti Rantanen This article studies the moral development at Enron from the perspective of its long-term CEO and chairman Ken Lay. I focus on some critical decisions in the early years of Enron and speculate why Lay chose in favour of non-systems intelligent solutions in leading morale. According to the outlook developed it is plausible to think that immoral behaviour at Enron stemmed not so much from Lay’s immoral character but from his Christian values. Neglecting opportunities to change his value structure Lay avoided tough decisions that marked loss for others. Consequently, unable to make decisions objectively based on systemic rather than individual motives, he lost his opportunity in creating coherent corporate values promoting moral integrity. If the suggested causality is true, it underlines the importance of conscious moral leadership as an everyday discipline. Introduction This article discusses the story of Enron, the infamous American energy company that December 2, 2001 filed the largest bankruptcy case in US history, totalling losses around 66 billion US dollars,1 forcing 4,000 unemployed,2 and bringing down Arthur Andersen, 3 its auditing company. For many of the “bad” and publicly convicted Enron executives it has been the worst nightmare come true, a personal travesty. Cliff Baxter, an Enron executive, has committed suicide and Ken Lay, after being found guilty of conspiracy...
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...What role did the CFO play in creating the problems that led to Enron’s financial problems? In order to prevent the losses from appearing on its financial statements, Enron used questionable accounting practices. To misrepresent its true financial condition, Andrew Fastow, the Enron’s CFO, takes his role involving unconsolidated partnerships and “special purpose entities”, which would later become known as the LJM partnership. Taking advantage from the SPEs’s main purpose, which provided the companies with a mechanism to raise money for various needs without having to report the debt in their balance sheets, Enron’s CFO directly ran these partnerships and designed them to purchase the underperforming assets (such as Enron's poorly performing stocks and stakes). Although being recorded as related third parties, these partnerships were never consolidated so that debt could be getting off its balance sheet and the company itself could boost and have not had to show the real numbers to stockholders. Andrew Fastow was using SPEs to conceal some $1 billion in Enron debt. Overall, according to Enron, Fastow made about $30 million from LJM by using these partnerships to get kickbacks which were disguised as gifts from family members who invested in them and enriching himself. His manipulation of the off-balance-sheet partnerships to take on debts, hide losses and kick off inflated revenues while banning employees' stock sales was one of the reasons triggered the collapse of the company...
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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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...this, Watkins was not. Third, she started having suspicions about unethical practices as early as 1996, years before she wrote anything to Lay (How Could 29); if she was truly ethical, she would have reported these things when she first became aware of them. Finally, she cashed in her own stocks because she knew Enron's were about to tank, and continued to work in an unethical fashion when she did not get resolution from Lay (Ganske B05), which are not the practices of someone concerned with the ethics of a situation. 2. What facts would you want to know before making a judgment about Watkins? What ethical issues does this situation raise? If I knew nothing about Watkins other than the fact she “blew the whistle” on corrupt practices at Enron, I would want to know when she did so, to whom, and why. I would also want to know what she was gaining from the unethical practices that were occurring (e.g. monetary rewards, status), as well as the risk to her upon blowing the whistle. For example, she noted years later that the initial reaction to her disclosure was that they wanted to find a way to fire her (Beenen and Pinto 277); this is certainly a big risk to take. Finally, I'd like to know her position in the company, meaning was she truly in a position to make her accusations. There are many ethical issues raised by this situation,...
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...Enron Leadership Orientations Case Analysis Enron’s company culture will be evaluated using four leadership frameworks: Structural, Political, Human resource, and Symbolic. The structural framework will evaluate the architectural and structural design of the organization, its units and subunits, roles and rules, goals and policies. The political framework will evaluate the struggles Enron faced for power and advantage and the competitiveness and scarce resources that create challenge. The human resource framework will evaluate the understanding and importance of the people in the organization. Finally, the symbolic framework will evaluate the culture at the heart of the organization assessing the rituals, ceremonies, stories and faith of the organization. Structural Framework A major focus of Enron over the 17 years that Ken Lay ran the corporation was to “get big fast”. Daft (2013) teaches us that large size is a typical contingency factor of a mechanistic design (p.31). Since Enron’s organizational structure was organic as, opposed to mechanistic, it became difficult for leadership to maintain control and to guide the company in their desired direction. The decentralized structure used by Enron lead to the top leadership losing control of their employees. Jeff Skilling was able to demand risky market-to-market accounting practices, which eventually dried out Enron’s cash flow. Later on, “prima donna traders or deal-makers that demanded promotions” overruled Ken Lay and...
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...Managerial Accounting Q1 | | | Instructor: Nikolaos Kourkoumelis, Ph.D. | Student: Marija Lukic | 11/14/2012 | | Table of Contents The Ethics in Accounting case and the plan…………………………………………….4Incidentals of Authorization and Submittal…….………………………………………………………………..4Objective………………………………………………………………………………………………………………………..4 Use of Observational Techniques…………………………………………………………………………………….4 An overview of the Report……………………………………...……………………………………………………….4Introduction………………………………………………...…………………………………………5The importance of Ethics in Accounting…….……………………………………………………………………..6 Creative Accounting…………………………………………………………………………….…7 Accounting Scandals..……………………………………………………………………………………………………10 The Enron Scandal……………………………………………………………………………………..10 The WorldCom Scandal………………………………………………………………….…………..12The consequences of Creative Accounting……………………..…………………………………13Measures of Prevention……………………………………………………………………………………15Conclusion……………………………………………………………………….…………………..17Bibliography……………………………………………………………...…………………………18 | Table of Figures Figure1. A proposed framework for understanding accounting manipulation practices…….……...9 The Ethics in Accounting case and the plan Incidentals of Authorization and Submittal This report is submitted to Dr. Nikolaos Kourkoumelis , professor of “Managerial Accounting” , on November 14th 2012, as authorized on the second Week of Q1 classes, 2012. The research and report was conducted under the...
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...Business Ethics: Enron Case Study Introduction: Enron was a very powerful company that was doing very well in the market. The value of its share was high and the company was enjoying an overall healthy position as a business. The employees were happy and new recruits would have killed to get a job at Enron. However, this was not to last. Enron enjoyed so much success that it got to its head and it started making all sorts of problems. Enron decided to change its organizational structure by employing new people at high posts who were given the opportunity to make big decisions that could directly affect the organization. Thus, their organizational design was altered. The reward system within the organization was also changed since the top performers were given the opportunity to receive many bonuses and stocks options. This new system was to be controlled by an internal controlling authority but this did not work well because the people who were reviewing and those who were being reviewed were working on the same levels and this caused them to form alliances among themselves. They all ‘looked out’ for each other and were not honest with their reviews, and everyone was given good reviews. Employees were scared to do something that would anger their superior and this is why they all became ‘yes men.’ This created a very unstable culture that was based on dishonesty and this caused Enron’s downfall. Division of Workers and Executives: The Culture at Enron Enron’s...
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...ethical breaches in recent times. 3 2.0 Accounting ethical breaches and their impacts 3 2.1 The Scandal of Enron 3 3.0 Organizational ethical issues and the management failure 5 4.0 Breach of the accounting practices and its impacts 5 5.0 Recommendations by the CFO 6 6.0 References 8 1.0 Corporate ethical breaches in recent times. Ethics is an important aspect of business in today’s enironment. Sometimes management ignores or leaves to state laws to govern the code of ethics within a company. Companies have faced a lot of issues regarding ethical situations in modern times. According to Baker (2012) contrary to the popular belief of the recent global financial crisis resulting from failures of accounting ethics, he argues that there is not enough evidence to support this connection. 2.0 Accounting ethical breaches and its impacts Breaches of the accounting ethical policies have become a source of concern for the firms today. The proper application of IFRS and GAAP standards is vital for each firm. In recent years as more scandals have come into the spotlight firms have taken more and more internal measures in addition to the policy making at the governmental level to ensure breach of consumers’ trust and laws does not take place in the future. There has been a tremendous increase in the interest in accounting ethics (Cowton, 2013). 2.1 The Scandal of Enron The scandal of Enron in 1990’s is well known in history. When due to misrepresentation in the accounting procedures...
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...Accounting ethics is primarily a field of applied ethics and is part ofbusiness ethics and human ethics, the study of moral values and judgments as they apply to accountancy. It is an example of professional ethics. Accounting introduced by Luca Pacioli, and later expanded by government groups, professional organizations, and independent companies. Ethics are taught in accounting courses at higher education institutions as well as by companies training accountants and auditors. Due to the diverse range of accounting services and recent corporate collapses, attention has been drawn to ethical standards accepted within the accounting profession.[2] These collapses have resulted in a widespread disregard for the reputation of the accounting profession.[3] To combat the criticism and prevent fraudulent accounting, various accounting organizations and governments have developed regulations and remedies for improved ethics among the accounting profession. ------------------------------------------------- Importance of ethics The nature of the work carried out by accountants and auditors requires a high level of ethics. Shareholders, potential shareholders, and other users of the financial statements rely heavily on the yearly financial statements of a company as they can use this information to make an informed decision about investment.[4] They rely on the opinion of the accountants who prepared the statements, as well as the auditors that verified it, to present a true and fair...
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