...Global Perspectives on Accounting Education Volume 3, 2006, 27-48 ENRON AND ARTHUR ANDERSEN: THE CASE OF THE CROOKED E AND THE FALLEN A Gary M. Cunningham Visiting Professor Department of Business Administration Åbo Akademi University Turku, Finland Jean E. Harris Accounting Department Pennsylvania State University, Harrisburg Campus School of Business Administration Middletown, Pennsylvania USA ABSTRACT Outside the US, the failures of Enron and Arthur Andersen remain puzzles. How could the accounting and audit failures associated with Enron and Arthur Andersen happen in the US where auditing is sophisticated, accounting principles are strong, and disclosure is emphasized? This is a teaching case for persons outside the US to review the financial reporting and auditing issues related to Enron and to explain the regulation of accounting and auditing in the US. It has broad implications for corporate governance and accounting regulation in other countries as well. n the years after the Enron Corporation declared bankruptcy in 2001 and Arthur Andersen failed in 2002, people are still asking, especially those outside the US, how could this happen? What went wrong? The US has a well-developed set of Generally Accepted Accounting Principles (GAAP) that requires extensive disclosures in audited financial statements, and a well-established federal agency, the Securities and Exchange Commission (SEC) that monitors financial reporting. This case is written for accounting students and...
Words: 9861 - Pages: 40
...Global Perspectives on Accounting Education Volume 3, 2006, 27-48 ENRON AND ARTHUR ANDERSEN: THE CASE OF THE CROOKED E AND THE FALLEN A Gary M. Cunningham Visiting Professor Department of Business Administration Åbo Akademi University Turku, Finland Jean E. Harris Accounting Department Pennsylvania State University, Harrisburg Campus School of Business Administration Middletown, Pennsylvania USA ABSTRACT Outside the US, the failures of Enron and Arthur Andersen remain puzzles. How could the accounting and audit failures associated with Enron and Arthur Andersen happen in the US where auditing is sophisticated, accounting principles are strong, and disclosure is emphasized? This is a teaching case for persons outside the US to review the financial reporting and auditing issues related to Enron and to explain the regulation of accounting and auditing in the US. It has broad implications for corporate governance and accounting regulation in other countries as well. n the years after the Enron Corporation declared bankruptcy in 2001 and Arthur Andersen failed in 2002, people are still asking, especially those outside the US, how could this happen? What went wrong? The US has a well-developed set of Generally Accepted Accounting Principles (GAAP) that requires extensive disclosures in audited financial statements, and a well-established federal agency, the Securities and Exchange Commission (SEC) that monitors financial reporting. This case is written for accounting students and...
Words: 9861 - Pages: 40
...Enron Ponzi Scheme Enron Ponzi Scheme The Enron scandal was a corporate scandal that involved the American energy giant Enron Company based in Houston, Texas and the auditing and accountancy-consulting firm Arthur Andersen. The scandal was uncovered in October 2001. Enron Corporation was undoubtedly a giant corporation and in fact, some individuals suggest that it was one of the largest energy companies’ world over. It comprised of a multibillion corporation that employed several individuals and had various affiliations right to the White House. Enron majorly depended on external sources of credit to finance its operations (Loren, 2003). In 2001, the corporation collapsed leaving in its wake financial chaos and financially ruined lives and families. It emerged that the Enron Corporation’s remarkable financial condition thrived on institutionalized, systemic and intricately planned accounting fraud that was later to be referred to as the “Enron scandal”. From that instance, Enron has continued to become a very popular symbol and example of willfully orchestrated corruption. The collapse of Enron Corporation destroyed lives and shattered reputations, questions have been raised on how the fraudulent transactions occurred and who was involved. In this paper, all these questions will be investigated explicitly. The paper will also focus on the various ways in which the Enron debacle created an awareness of corporate ethics within the United States (Peter & Ross, 2002). Enron...
Words: 1729 - Pages: 7
...Q-25 4. Q-36 5. Conclusion6 1. Introduction 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, its annual revenues rose from about $9 billion in 1995 to over $100 billion in 2000. Enron was the country's most innovative companies in the duration of 1990s. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses. Besides buying and selling gas and electricity futures, it created whole new markets for such commodities like coal, water, electricity, gas etc... At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. According to Thomas (2002), the drop of Enron's stock price from $90 per share in mid-2000 to less than $1 per share at the end of 2001, caused shareholders to lose nearly $11 billion. And Enron revised its financial statement for the previous five years and found that there was $586million in losses. Enron fall to bankruptcy on December 2, 2001. During this fraud persons who were involved were CFO, Andrew Fastow, chairman of the board, Kenneth Lay, CEO, Jeffrey Skilling. 2. Q-1 What are the systemic, Corporate nd individual issues raised by this case ? In the Enron fraud mainly involve persons are Andrew Fastow Enron and another one person is Arthur Anderson and...
Words: 1526 - Pages: 7
...ENRON PROJECT Gilbert Canda Strayer University LEG100 – Business Law I Professor: Gloria Sodaro Enron began as a domestic natural gas pipeline company which was established in Houston, Texas during 1930. After operating for thirty years, during the 1960s; Enron decided to expand its corporation into different segments in order to invest in the diverse levels of the energy market. In the late 1980s and early 1990s, Enron established a major change in the company’s operations by making the “move from being a domestic company to a global provider of energy products.” (History of the Workplace, 2003) This will only create more opportunity for Enron to develop and in the mid and late 1990s, “further expansion of Enron’s activities continued, including a shift from a company based in physical energy assets to a provider of broader services, such as risk management, communications, and financial services.” (History of the Workplace, 2003) The three men associated with the downfall of Enron include Kenneth Lay, Jeffrey K. Skilling, and Andrew S. Fastow. Kenneth Lay was the founder, and chief executive officer of Enron Corporation. Jeffrey K. Skilling was hired by Kenneth Lay as the replacement CEO, however, Skilling shortly resigned after “Enron shattered into scandal” (CBS News, 2006). Andrew Fastow was the chief financial officer for Enron. “Fastow was the chief financial officer who, according to documents, engineered many partnerships that eventually landed Enron...
Words: 705 - Pages: 3
...About ENRON Pass the business sector accounting profession as a whole these days deep crisis of confidence can be expressed in a crisis stemming from the control of greed and narrow special interests clearly a large part of this sector in the various countries of the world ethics. The collapse of Enron the end of 2001 of the highlights of the last companies that have fallen as a result of many factors, perhaps the most prominent non-application or lack of ethics and business, where the giant assets of the company fell an estimated value of $ 63.4 billion, which form the largest bankruptcy of the American company and perhaps in the world whole. After having listened to 56 witnesses during 15 weeks of hearings in the city of Houston in Texas, the jury decided the issue of eight men and four women unanimously that two of the executives of Enron were Kenneth Lay and Jeffrey Skilling were guilty of a number of charges against them in issues related to corruption and conspiracy, as well as lying about the financial troubles of the company. Skilling was found guilty of 19 charges out of 28 charges, was convicted if the whole will make his prison term of 275 years. The Lay was found guilty of six counts of fraud and conspiracy. Finally the judiciary issued a sentence of 24 years and four months to Jeffrey Skilling, and said the judge who issued the ruling during the recitation of the verdict, "The crimes of this magnitude deserve severe punishment." Like Skilling alone in front of the...
Words: 363 - Pages: 2
...Accounting scandals such as Enron, Worldcom, and Tyco have destroyed major corporations and has severely shaken our confidence in business ethics and overall morals. A verse that comes to mind when you think about how these executives in those corporations have taken advantage of their employees, creditors, suppliers and other corporations in order to make extra profits and bigger bonuses is found in the book of Proverbs. According to the word of God in the New American Standard Bible (1995), “He who oppresses the poor to make more for himself or gives to the rich, will only come to poverty” (Pr 22:16). The book of Proverbs does not leave its readers wondering as to its purpose. At the very onset we are clearly told the author’s intention. Proverbs 1:2-6 tells us that the purpose of these proverbs is to teach people wisdom and discipline and to help them understand wise sayings. Through these proverbs, people will receive instructions in discipline, good conduct, and doing what is right, just, and fair. The book of Proverbs is simply about godly wisdom, how to obtain it, and how to use it in everyday living. This wisdom assumes that there is a right way and a wrong way to live. It gives direction to our lives and keeps us in step with the fabric of life that God has created (NASB, 1995). Proverbs 22:16 shows that we will seek others to satisfy our wants. This reliance on others usually goes past getting a helping hand or charity and turns to fulfilling our...
Words: 871 - Pages: 4
...Week 1 Trevor Castleman Bethel University MOD450 Prof. Huss 1/22/15 Enron 1) It is in no way possible to reconcile Kenneth Lay’s statements in regards to Enron’s values and visions with the actual practices of Enron. Executive from the company used the company profits as personal funds. (p.11) It is impossible for Lay to truly believe that the company was in ethical operation as he was aware that Enron was using monumental amounts of credit to keep the company looking profitable.(P.11) Lay should have withheld legal operation and not allowed the company to be used as a person asset by corporate executives. 2) The way bonus’ are structured speak in great volume about a company when set up unethically. The way Enron’s bonus’ were structured so that employees were more concerned with the stock price than the state of the business. To the point that a dropping stock price was so unacceptable that employees were willing to lie, cheat, and steal to keep it on the rise. This meant defrauding investors and eventually collapsing a once profitable and respectable company. This system of a bonus is very corrupting. 3) Technical compliance with the law and ethical obligation are two completely different topics. When looking at the law it never seems to fail that there is some sort of loop hole. It is possible to completely comply with the law yet mislead and lose complete trust of stockholders due to failing to act ethically.(P.11-12) It is not only unacceptable...
Words: 787 - Pages: 4
...THE ENRON COLLAPSE The Androids Under Attack case was similar to the case of Enron Corporation. It was formed in 1985 from a merger of Houston Natural Gas and Internorth, Enron Corp. was the first nationwide natural gas pipeline network. Over time, the firm’s business focus shifted from the regulated transportation of natural gas to unregulated energy trading markets. The guiding principle seems to have been that there was more money to be made in buying and selling financial contracts linked to the value of energy assets that in actual ownership of physical assets. Until late 2001, nearly all observers including professional Wall Street analysts regarded this transformation as an outstanding success. Enron’s reported annual revenues grew from under $10 billion in the early 1009s to $101 billion in 2000, ranking it seventh on the Fortune 500. Starting in August 2001, when CEO Jeffrey Skilling resigned for no reasons, October 16, Enron reported its first quarterly loss in 4 years, taking charge against the earnings of $1 billion for poorly performing businesses. The reported third quarter loss was $618 million with the profit of $292 million a year earlier. On November 8, the company announced in a Securities and Exchange Commission (SEC) filing that it was restating its earnings since 1997 which had reducing them by $586 million. The coup-de-grace came on November 28, when major bond rating agencies downgraded Enron’s debt to below-investment-grade, or junk bond status. The...
Words: 1385 - Pages: 6
...Running head: Ethics in accounting Ethics as an Accountant The main objective of this proposal is to gain insight into the unethical accounting practices of major corporations (with a majority of the focus on Enron, WorldCom, Tyco, and Adelphia) and ultimately exposing the true perpetrators behind these scandals (the CEO's) in an effort to restore credibility in the once revered accounting profession. Many of the people responsible of these crimes are enjoying retirement in lavish homes while receiving ludicrous pension plans and company benefits at the expense of investors. If they are not brought to justice, they will realize they can get away with this sort of behavior, and the prevalence of unethical behavior will continue to rise. Research Question Are the accountants truly responsible for the fraudulent claims companies are making these days, or are they simply pressured by their bosses to fabricate figures that enhance the image of the company's profitability and fill the CEO's greedy pockets? Literature Review In the past 5 years, a plethora of articles and books have been released, dealing with ethical business practices. Balancing the books: The crooked E, is an article by Anita Peltonen, which examines Enron's practice of kiting (Illegally benefiting from altering the amount of money or time represented by checks that are in transit between deposit and payment, or credit card purchases that are between the purchase and the payment. For example...
Words: 2716 - Pages: 11
...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...
Words: 1372 - Pages: 6
...& Refining, the predecessor of Exxon Mobil Corporation. He soon became the CEO and Chairman of Houston Natural Gas, which in 1985 merged with InterNorth. The newly formed company initially named itself HNG/InterNorth but soon renamed itself to Enron. In 1986, Lay became the CEO of Enron and slowly transformed the company into an energy-trading giant. During the time of merger, Enron was largest owner of inter and intrastate pipelines for transporting natural gas. With the help of government deregulation of prices of natural gas, Enron was able to sell its gas at higher prices, which significantly boosted its revenue. Enron pursued further growth by extending its natural gas business model to become a trader in electric power, coal, paper, pulp and water. By 2000, Enron has reached no. 7 on the Fortune 500 and claimed $101 billion in annual revenues. It had become a conglomerate that owned and traded all types of energy in financial markets. However among the success of Enron’s business strategy, were failed business attempts and unethical accounting approach to hide company’s debts. In 2001, Lay sold large amounts of Enron stocks while assuring its employees and shareholders that the company is in a great shape. After few months, Enron filed for bankruptcy in December 2001, the biggest in US history and over 20,000 employees lost their jobs, savings and pensions. In 2004, Lay was indicted for 11 counts of securities fraud, wire fraud, and making false and misleading statements...
Words: 1703 - Pages: 7
...Only months before Enron Corp.’s bankruptcy filing in December 2001, the firm was widely regarded as one of the most innovative, fastest growing, and best managed businesses in the United States. With the swift collapse, shareholders, including thousands of Enron workers who held company stock in their 401(k) retirement accounts, lost tens of billions of dollars. Investigations of wrongdoing may take years to conclude, but Enron’s failure already raises financial oversight issues with wider applications. Why didn’t the watchdogs bark? This report briefly examines the accounting system that failed to provide a clear picture of the firm’s true condition, the independent auditors and board members who were unwilling to challenge Enron’s management, the Wall Street stock analysts and bond raters who missed the trouble ahead, the rules governing employer stock in company pension plans, and the unregulated energy derivatives trading that was the core of Enron’s business. The report will be updated regularly as further reliable information about Enron’s downfall – which is now extremely limited – becomes available. Other contributors to this report include Bob Lyke, Patrick Purcell, and Gary Shorter. Formed in 1985 from a merger of Houston Natural Gas and Internorth, Enron Corp. was the first nationwide natural gas pipeline network. Over time, the firm’s business focus shifted from the regulated transportation of natural gas to unregulated energy trading markets. The...
Words: 1758 - Pages: 8
...| The Enron Scandal | | Introduction Enron Corporation was an American energy, commodities and services company based in Houston, Texas. From the 1990's until December 2001, Enron was famous throughout the business world and was named by Fortune as "America's Most Innovative Company" for six consecutive years. It grew wealthy due largely to marketing, promoting power, and its high stock price. Before its bankruptcy, Enron employed about 21,000 staff in forty countries and was one of the world's major electricity, natural gas, communications, and pulp and paper companies, which claimed revenues of $100.8 billion in 2000. Enron gave the illusion that it was a steady company with good revenue which was not the case, as a large part of its profits were made on paper through a creatively planned accounting fraud. Deep debt and surfacing information about hiding losses gave the company big problems and in the late 2001 Enron declared bankruptcy under the United States Bankruptcy Code. The collapse was followed by a series of revelations on how the executives manipulated Enron's success. The Fraud Schemes The Enron scandal, revealed in October 2001 was a management fraud involving top executives of Enron who deliberately manipulated the accounting structures in order to conceal their losses and debts so that the corporation appeared to be performing favourably. They adopted mark-to-market accounting, an accounting system based on market value, which was then inflated; the...
Words: 2330 - Pages: 10
...Web of Details Did Enron In as Warnings Went Unheeded Sun Feb 10, 3:15 PM ET By KURT EICHENWALD with DIANA B. HENRIQUES The New York Times Jeff Gerth, Richard A. Oppel Jr., Richard W. Stevenson, and Don Van Natta Jr. also contributed to this article. HOUSTON, Feb. 9 Kenneth L. Lay strode onto a ballroom stage at the Hyatt Regency Hill Country Resort in San Antonio, walking between two giant screens that displayed his projected image. Before him, bright light from the ballroom's chandeliers spilled across scores of round tables where executives from the Enron Corporation waited to hear the words of Mr. Lay, their longtime chairman and chief executive. This meeting of hundreds of Enron executives in the first week of January 2001 was a time of revelry, a chance to celebrate a year when business seemed good even better than good. At night, according to executives who attended, Champagne and liquor flowed from the open bar, while fistfuls of free cigars were available for the taking. Executives could belly up to temporary gambling tables for high-stakes games of poker. Others found their excitement in the company- sponsored car race; one executive had even hired a truck to transport his three Ferraris from Houston for the event. Now, as waiters wearing bolo ties scurried about, the executives listened eagerly to Mr. Lay's descriptions of Enron's recent year of success, and the new successes that were within reach. Already, Enron was near the top of the Fortune 500, a...
Words: 6202 - Pages: 25
