...most admired companies was just faking all their records taking down a lot of investors of their company to bankruptcy as well as their employees. The Enron scandal has paved the way not only to America’s consciousness on risks involved on how corporations work, but how stakeholders can be victimized by fraud if corporations are not properly audited and regulated. It also opened consciousness of the whole world as well. In this paper, we will take a look on how proper implementation of business ethics and auditing can help avoid tragedies like Enron. 1. Enron’s rise to Top 2. Fall of Enron 3. Reflection Enron’s rise to Top Kenneth Lay founded Enron in 1985 and after two years, the company becomes involved in a scandal after two traders suspiciously got consistent profits on betting on the oil markets. The auditors found out about their schemes but Lay still encouraged them to “keep making us millions” (1). When Enron’s reserves were found out to be gambled away by the traders, they were fired and this almost brought down the company. Lay, after finding this out, denies any knowledge of wrong doings. Due to this, Lay hires a new CEO Jeffrey Skilling who agreed to join Enron on the condition that the company uses the market to market accounting method which allows Enron to record potential profits immediately upon signing of deals despite the fact that the profits have not yet been realized. Aside from that, Jeffrey Skillng imposed a very competitive working environment at...
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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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...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. A new CEO, Jeffrey Skilling was hired by Kenneth Lay to replace Borget’s position after Borget went to the jail. Jeff Skilling was mark-to-market accounting before he worked for Enron. A mark-to market accounting allows accountants to calculate and book the profits of the project immediately after it is signed, although nobody knew whether the project would turn out...
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...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 taking the massive options. Enron also tried to get public’s attention by launching a series of PR campaign, which gave it the impression of being a profitable company, although performing poorly elsewhere. Enron failed in several...
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...The scandal behind ENRON is a subject I had heard and read briefly about but never really knew all of the details. When I watched the film, Smartest Guy In The Room, I really got the opportunity to understand what caused the fall of ENRON and the negative impacts ENRON caused. The film begins by questioning the reasons for ENRON’s fall to bankruptcy in 24 days by addressing the characteristics of Pride, Greed , Arrogance, and Intolerance which were all strong characteristics of the corporate culture at ENRON. Ultimately, the executives and employees at ENRON were blinded by money which eventually sunk their own lifeboat. The movie is definitely a story about people rather than merely addressing ENRON from a financial perspective, and tells the story of the different people behind the rise and fall of ENRON. I was amazed that ENRON was the 7th largest corporation in America with over 70 billion dollars charting the future of energy and power. I also didn’t know all the political connections ENRON had invested with the Bush family and how they were the largest contributor to G.W.Bush’s First Presidential Campaign. This was definitely an alarming point to find out and learn just how politics and corporate America really are tied together. The film talks about Kenny Lay, the founder of ENRON, who grew up poor and wanted to make wealth for himself. Lay really wanted to liberate businessmen from regulation of government and deregulate energy markets. He had a strong desire for...
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...Nicholas Barton 00343164 Accounting 2600 Case Study: The Enron Collapse “Why was it that Enron, a financial services company, in effect, could not release a balance sheet with their earnings statement?” -Jim Chanos, President Kynikos Associates. In the film “Enron: The Smartest Guys in The Room,” analyst Jim Chanos asks why, the 7th largest company in the world at the time, could not supply investors with basic financial statements. These statements as we learn in accounting are the fundamental tools through which we communicate a corporation’s financial position. So why was it that a corporation valued as much as $70 Billion at one time would have ever achieved such success without performing basic accounting functions? The CEO, Jeff Skilling’s caustic reply to the question foreshadowed the collapse of a company that had been built on lies and deceit. While the Enron scandal is one of the best known in the history of international business, the reasons for the collapse were built into the company from its very roots. I will begin with an overview of the company and the ensuing scandal, as well as touching on many of the events that led up to the collapse of the company. I will also touch on events that contributed to the company’s inflated stock prices and their unethical and often desperate business practices that undermined the foundation of their business. The aforementioned film, Enron: The Smartest Guys in The Room was an excellent resource as it was primarily historical...
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...were the smartest guys in the room? Kenneth Lay, the founder of ENRON. Louis Borget, the CEO who diverted company money to offshore accounts. Jeffrey Skilling, the CEO who implemented the mark-to market accounting. J. Clifford Baxter and Lou Pai, the executives who Skilling hired. Andrew Fastow, the CFO who created companies solely to do business with Enron. The auditors, who turned the head when the money came rolling in. Are these the smartest guy in the room? In the beginning ENRON was a natural gas supplier in Houston Texas moved gas through pipelines to locales throughout the United States. In 1984 Kenneth Lay joined the company. In the late 1980s and early 1990s it started trading. It became one of the largest energy companies in the world. But it was scandalous from the beginning. Within a few years after the company was found the first scandals began. This scandal involved two traders betting on the oil markets which resulted in consistent profits. It was also discovered that the CEO, Louis Borget, had been diverting company money to offshore accounts. Lay encouraged them to continue making money for the company after the auditors discovered their schemes. Only when it was discovered that the traders gambled away ENRON’s reserves did the traders get fired. Lay denied knowing anything about the issues. After Borget leaves the company Lay hires Jeffrey Skilling who implements mark-to market accounting which allowed the company to book potiental profits...
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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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...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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...Task 1 : To me, business responsibility is often known as corporate social Responsibility (CSR), where CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large. Being a responsible business essentially means minimizing the negative social and environmental impacts of your business and maximizing the positive ones .These impacts include all stakeholders, like staff customers, suppliers, investors and so on. However just being responsible is not enough, the organization should also need to consider being a sustainable business. Where being sustainable is not only about managing financial risks, obligations and opportunities but also social and environmental factors. There are five different ways to examine whether the organization being business responsibility or not : 1:Community-this is about how you interact with your local community partners and organizations. 2:Environment-this is about how you reduce,reuse or recycle resources to minimize negative environmental impacts. 3:Workplace-this is about how you support and engage your employees 4:Marketplace-this is about the responsible commercial decision your company makes 5:Management and communications-this is about how you support,manage and communicate your responsible and sustainable business practices in your organization. Being a responsible...
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...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. Even they suffered the poor performing, they still portrayed Enron was profitable. In 2000, Enron became one of the few Internet-related companies and was named as the “most admired” corporation by Fortune magazine. However, Enron was still questioned irregularities about the company’s financial statements and stock value. These concerns indeed existed in Enron’s financial statements. In...
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...CHAPTER-1 INTRODUCTION BACKGROUND OF THE STUDY:- Once the seventh largest company in America, Enron was formed in 1985 when InterNorth acquired Houston Natural Gas. The company branched into many non-energy-related fields over the next several years, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Although their core business remained in the transmission and distribution of power their phenomenal growth was occurring through their other interests. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. Then came the investigations into their complex network of off-shore partnerships and accounting practices The saga of the ENRON Corporation has been unfolding in the media for well over a year. In the span of only three years, ENRON has gone from public and professional acclaim of the company and its senior executives to scorn, infamy and bankruptcy. Its public auditing firm, Arthur Andersen, has basically been destroyed, as well as publicly disgraced. Tens of thousands of employees and investors have been emotionally and financially affected. Major financial services firms in banking, securities brokerage and insurance have been, and may yet be, drawn into the legal battles regarding who is to blame for the ENRON failure. Enron grew wealthy due largely to marketing, promoting power, and its high stock price. Enron was...
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...------------------------------------------------- Top of Form The Rise and Fall of Enron | The rise and fall of Enron is an important, complex story. In its early days Enron did the right things for the right reason and garnered substantial credibility. Later successful operations were replaced with the illusion of successful operations. In the last phases Enron milked its credibility to sustain operations through loans. When its credibility with lenders crumbled the loan funds dried up and the corporation imploded. It is reminiscent of the old cartoon of the wily coyote who runs off a cliff. For a period of time after the coyote leaves solid ground he is suspended and tries by furious windmilling to stay suspended but eventually plummets to the ground. In Enron's case the magical period of suspension after it had left the solid ground of economically profitable operation lasted for years. The History of the Natural Gas Industry Natural gas, primarily methane, was originally an unwanted byproduct of petroleum extraction. For many years when an oil well vented gas it was simply flared; i.e., burned off. But people eventually learned the uses and virtues of natural gas and built pipelines to convey it to the cities where it took the place of coal gas for residential and industrial lighting and heating. The market for natural gas has three major types of economic units: 1. Suppliers, 2. Customers, 3. Pipeline companies. In a competitive market the fluctuations in the supply of natural gas creates fluctuations...
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...LUEGO DE ENRON: BENEFICIOS Y RETOS ANTE LA LEY SABARNES-OXLEY DE 2002 Abstracto Haciendo un recuento de la historia de Enron, desde grandes e importantes de la historia de los la fundación de la empresa, sus “innovadoras” Estados Unidos. La empresa originalmente se prácticas contundente dedicaba a la administración de gasoductos crecimiento del valor de sus acciones, hasta varios dentro de los Estados Unidos, aunque luego contables, su éxito, el sucesos que comenzaron a degradar su imagen, veremos cómo no hubo más lugar dónde esconder el expandió sus operaciones para desarrollar, engaño y casi todo salió a la luz pública (un suicidio construir y operar los gasoductos y plantas de y la destrucción de documentos de auditoría energía, en muchos países de todo el mundo, impidieron que se conocieran muchos detalles). convirtiéndose rápidamente en una empresa Daremos una mirada a la carta que Sherron Watkins de renombre internacional. envió advirtiendo de prácticas inapropiadas en la administración de la empresa, la influencia de Enron El primer paso fue diseñar una en la alta esfera política de los Estados Unidos, entre estrategia de negocio innovadora para otros eventos que predijeron la estrepitosa caída de Enron en 2001 y que fue el detonante para la creación de la Legislación Sarbanes-Oxley de 2002. Además, obtener los mejores beneficios posibles sin tener en cuenta la ética o la moral...
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