...Enron Corporation Overview: 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 de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure. Issue: Enron, once the countries seventh-largest company according to the Fortune 500, is a good example of how greed and the desire for success can transform into unethical behavior. Good ethics in business would be to compete fairly and honestly, to communicate truthfully and to not cause harm to others. These are things that Enron did not seem to display, which led to Enron’s operations file for bankruptcy in 2001. Enron’s scandal has become one of the most talked about forms of unethical business behaviors. The company’s collapse resulted from the disclosure that it had reported false profits, used accounting methods that failed to follow generally accepted procedures. Both internal and external controls failed to detect the financial losses disguised as profits for a number of years. Enron’s managers and executives retired or sold their company stock before its price went down. Enron employees lost their jobs and most of their retirement savings invested in Enron stock. Enron’s dishonesty and misleading business ethics...
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...improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.” ("Sarbanes-Oxley Essential Information", 2003-2012). The Sarbanes-Oxley act was named after senator Paul Sarbanes and Representative Michael Oxley. Sarbanes and Oxley drafted the Sarbanes-Oxley act of 2002; both wanted to make sure that any business or corporation would be held accountable for wrongdoings. Enron would be sure to be held accountable. Enron Corporation Enron Corporation was an American energy company located in Houston, Texas. Enron employed nearly 21,000 people and was one of the world’s leading electricity, natural gas, pulp and paper, and communications companies. Enron’s fall was the result of unethical practices and behavior. Enron began as a company that only sold natural gas. “Yet, in a sign of trouble to come, in 1987 Lay overlooked evidence of financial misdeeds in the company’s Valhalla, NY unit as executives Louis Borget and Thomas Mastroeni greatly inflated profits while embezzling funds.” ("Enron: A Disaster Years...
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...Enron Case: Enron is known for the world’s biggest scandal in the history of American business. In Dec 2001, Enron Corp filed for bankruptcy. The major factors that led to the dissolution of Enron Corporation are the shortfall of business ethics of Enron’s management, accountants, auditors, board of directors and consultants. Off balance sheet arrangements made transactions between Enron and its partners were not clear and transparent. Between 1993 and 2001, Enron created over 3,000 SPEs that resulted in the overstatement of Shareholders’ Equity by $1.2 billion. This increased the size of loan portfolio of Enron without a corresponding increase in share capital. Securitization was not treated as financing vehicle and no adjustments to leverage ratios were made then. Enron violated US GAAP and recorded inappropriate capital stock transaction. Common stocks issued to SPE were accounted as notes receivable. GAAP doesn’t allow this transaction unless cash is received. This puffed up Stockholders’ equity by 8.5% or by $1 billion in 2001. Enron used its own common stocks to capitalize SPEs to satisfy US GAAP. When Enron shares went down certain partnerships had to invest just enough allow SPEs not to be consolidated into Enron’s Financial statement. Enron had to transfer additional shares to SPE, Rapto, in a futile effort to support. Enron recognized revenues due to increase in stock price on stocks held in SPE. Anderson accounting firm formulated a mechanism to record...
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...TAB B TOPICS: THE CASE OF ENRON REQUIRED: After reading the case and articles in the Tab B readings, answer the questions below. You should download this document and include the question above your answer to make it easier to grade. Your answers should be in complete sentences. Based on the nature of the questions, one or two short paragraphs for each question should be adequate. You should print out your article write-up and submit it in class on the due date. 1. What was the nature of Enron’s business in 1985? How about in 2000? In 1985, it was a natural gas pipeline company. By 2000, it built leading businesses in energy trading and international energy-asset construction. 2. How could Enron earn money by trading in gas contracts? They would buy natural gas at spot prices instead of bundles (which was what was required before the deregulation of gas). This made the price of gas more volatile. Skilling suggested that Enron sell the gas in long-term fixed-price contracts with customers. To prevent the company from losing money due to price fluctuations, Enron would also enter long-term fixed-price contracts with producers by using swaps and forward and future contracts to make sure it met the energy requirements of customers. 3. Enron expanded its trading model to markets other than gas. What other markets did they expand into? Were there any concerns from expanding to these other markets? They...
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...Fall 2014 - Acct 218 -- Final Exam Problems – Take Home Version Name_______________________________________________________________Date___________ 1. CALCULATION OF DIVIDENDS-BASED VALUE. Royal Dutch Shell is a petroleum and petrochemicals company. It engages primarily in the exploration, production, and sale of crude oil and natural gas and the manufacture, transportation, and sale of petroleum and petrochemical products. The company operates in approximately 200 countries worldwide—in countries in North America, Europe, Asia-Pacific, Africa, South America, and the Middle East. During 2006–2008, Royal Dutch Shell generated the following total dividends to common equity shareholders (in USD millions Analysts project 5 percent growth in earnings over the next five years. Assuming concurrent 5 percent growth in dividends, the following table provides the amounts that analysts project for Royal Dutch Shell’s total dividends for each of the next five years. In Year 6,total dividends are projected for Royal Dutch Shell assuming that its income statement and balance sheet will grow at a long-term growth rate of 3 percent. At the end of 2008, Royal Dutch Shell had a market beta of 0.71. At that time, yields on intermediate-term U.S. Treasuries were roughly 3.5 percent. Assume that the market required a 5.0 percent risk premium. Royal Dutch Shell had 6,241 million shares outstanding at the end of 2008 that traded at a share price of $24.87. Required a. Calculate the required...
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...CASO ENRON THE SMARTEST GUYS IN THE ROOM ¿Cuál es la principal problemática del caso? La principal problemática del caso Enron parte en base al orgullo, la arrogancia, la intolerancia y la codicia de los los gerentes y altos directivos de la empresa; ellos se preocupaban más por sus ganancias personales que por el verdadero crecimiento de la empresa y de los trabajadores. Los problemas económicos de la compañía eran prácticamente invisibles para el público general ya que por muchos años Enron manipuló sus estados financieros con tal de presentar números favorables para todo aquel que invirtiera en la empresa. Las consecuencias fueron graves, ya que los empleados de Enron así como algunos empresarios de alto calibre decidieron invertir todo su capital, pensando que en un par de días se triplicaría su dinero, sin imaginar nunca lo que vendría después . Es importante mencionar que la ética que manejaban entre colaboradores era totalmente corrupta y un tanto agresiva. Por ejemplo, mediante el sistema de calificaciones entre empleados, más del 15% del staff era despedido y aquellos que obtenían buenos resultados, eran recompensados con bonos equivalentes a millones de dólares. Esto a su vez provocó una competencia feroz y poco amigable entre los corredores. Se puede deducir con facilidad que el principal problema de Enron radicó en sus ganancias inexplicables y más adelante en sus pérdidas fugaces. La ambición, el orgullo, la avaricia y el egoísmo infectó de raíz al sistema de...
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...Ethical Culture Project PART 1: Enron displayed all four cultural dimensions which are: high-risk taking, outcome orientation, aggressiveness, and low/no people orientation as a company. Kenny Lay, who was the CEO and Chairman from 1985-2002, displayed high-risk taking during the Vahalla scandal. He had two oil traders, Louis Borget and Tom Mastroeni that would make bets for Enron on whether the price of oil would rise or fall. This is a risky market because you can lose ten times your original investment, and it was hard to make the amount of money legitimately that they were at the time. Borget and Mastroeni were gambling with Enron’s money. Jeff Skilling organized high-risk company trips where he would plan dangerous activities that Enron employees would participate in. Andy Fastow, Enron’s chief financial officer, wanted to please his boss, Skilling, so he tried to increase Enron’s stock up even though they were 30 million dollars in debt. He got hundreds of special companies to prop up Enron’s stock by making Enron debt disappear. To outside investors it looked like cash was coming in, but Enron was hiding their debt in Fastow’s companies so investors couldn’t see it. Fastow was participating in outcome orientation, and Skilling encouraged him to do so. Skilling created a very aggressive company culture for Enron by implementing a performance review committee (PRC) that people were graded a one to a five and 10% people had to be a five and if they were they would be fired...
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...Running head: Forensic accountant 1 Forensic Accountant Tanya Pace Dr. Gina Zaffino Bus 508, Contemporary Business 11/16/2012 Running head: Forensic Accountant 2 Determine the most important five (5) skills that a forensic accountant needs to possess and evaluate the need for each skill. Be sure to include discussion regarding the relationship between the skill and its application to business operations. Although forensic accounting is not a new field, it has become more talked about since cases like Enron came to light. For someone interested in the Forensic Accountant profession they should know that this field can be time consuming, but very rewarding. People who work in this career investigate white collar crimes such as company fraud, fraudulent financial record reporting, and illegal investment schemes. In a recent study by the Federal Bureau of Investigation shows that white collar crimes have cost the United States and estimated 300 billion dollars (DiGabriele 2008). I think five of the skills that a forensic account would need are communication skills, detail oriented, professional and ethical behavior, sound judgment and discretion. Communication skills are vital in any profession. It allows you to convey information for others to receive. The problem with communication is that it can be interpreted differently by other intended parties. As a forensic accountant, communication skills, verbal and non verbal, are important...
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...The Fall of Enron Abstract This research paper talks about the Enron case – how it rose to the level of one of the top companies in the world and then fell from grace so that it eventually had to file for bankruptcy. The paper will discuss the financial and accounting manipulations that Enron resorted to and the analysts approach towards its stock prices and will discuss its eventual fate. The study will revolve around how Enron shed its ethics in an attempt to report ever increasing income and keep its stock prices high and how despite its short-lived surge of growth, it is still, even 11 years after a bankrupt, struggling to stand on its feet. The role of Enron’s top management and its auditors is elaborated upon, as is the detail of the tools they resorted to in order to hide debts and inflate profits. Enron was clearly a case of fraud where investors were cheated as the company management portrayed a rosy picture of a developing and expanding business while in reality the company’s expansion was going nowhere and most of its new businesses were unsuccessful. In an attempt to grow fast, Enron lost its roots and while trying to master itself in several different fields, forgot the basics of business. The Fall of Enron Introduction The fictional superhero Spiderman once said, “With great power comes great responsibility.” This balance between power and responsibility exists not just in our personal life, but also in business. Peter Drucker stated that “There is...
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...ENRON- A Study of FAILURES Who, How, Why! Arthur Gudikunst, Ph.D. Revised: April, 2003 Professor of Finance Finance Department Bryant College Introduction: 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. Overview of ENRON: The following timeline for ENRON is presented to set the major milestones for the company: July 1985- Houston Natural Gas merges with InterNorth to form ENRON, as an interstate natural gas pipeline company. Kenneth Lay is CEO. 1989- ENRON starts trading natural gas commodities and commodity derivative financial contracts. 1994- ENRON begins trading electricity as a commodity and related financial derivative contracts. Jeffrey Skilling is executive in charge of this new business venture. Nov. 1999- EnronOnline is launched as a web site for the global trading of energy commodities and derivative contracts. Jeffrey Skilling leads this continued transformation...
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...I have been in sales for the past 6 years and have seen just about every type of sales incentive that there is. I have been incentivized on my individual performance, a team performance, the companies performance and every combination of the 3. I have been incentivized on a short term basis (1 month growth) and on a long term basis (6 month growth) and have seen the advantages and disadvantages in all forms of incentives. The disadvantage with team performance incentives depends on the team and how the performance is graded. Often times, in a group setting, one coworker sees the opportunity to slack off as there are other members that can pull the weight. This can lead to dissension in a group and ultimately will reflect on the performance. The advantage, however, is that when done correctly, a team can collaborate their efforts towards a common goal while creating a synergistic effect. Performance can then be accelerated and each member can be paid accordingly. “Properly designed incentive programs work because they are based on two well-accepted psychological principles: (1) increased motivation improves performance and (2) recognition is a major factor in motivation” (Cascio, 2010 p. 438). These concepts are very applicable to individual incentive performance. When an individual has nobody else to share the incentive with, that means there is nobody to share the workload either. Individuals must be able to motivate themselves and they must be able to accept responsibility...
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...Journal of Economic Perspectives—Volume 17, Number 2—Spring 2003—Pages 3–26 The Fall of Enron Paul M. Healy and Krishna G. Palepu F rom the start of the 1990s until year-end 1998, Enron’s stock rose by 311 percent, only modestly higher than the rate of growth in the Standard & Poor’s 500. But then the stock soared. It increased by 56 percent in 1999 and a further 87 percent in 2000, compared to a 20 percent increase and a 10 percent decline for the index during the same years. By December 31, 2000, Enron’s stock was priced at $83.13, and its market capitalization exceeded $60 billion, 70 times earnings and six times book value, an indication of the stock market’s high expectations about its future prospects. Enron was rated the most innovative large company in America in Fortune magazine’s survey of Most Admired Companies. Yet within a year, Enron’s image was in tatters and its stock price had plummeted nearly to zero. Exhibit 1 lists some of the critical events for Enron between August and December 2001—a saga of document shredding, restatements of earnings, regulatory investigations, a failed merger and the company ling for bankruptcy. We will assess how governance and incentive problems contributed to Enron’s rise and fall. A well-functioning capital market creates appropriate linkages of information, incentives and governance between managers and investors. This process is supposed to be carried out through a network of intermediaries that include professional...
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...Journal of Economic Perspectives—Volume 17, Number 2—Spring 2003—Pages 3–26 The Fall of Enron Paul M. Healy and Krishna G. Palepu F rom the start of the 1990s until year-end 1998, Enron’s stock rose by 311 percent, only modestly higher than the rate of growth in the Standard & Poor’s 500. But then the stock soared. It increased by 56 percent in 1999 and a further 87 percent in 2000, compared to a 20 percent increase and a 10 percent decline for the index during the same years. By December 31, 2000, Enron’s stock was priced at $83.13, and its market capitalization exceeded $60 billion, 70 times earnings and six times book value, an indication of the stock market’s high expectations about its future prospects. Enron was rated the most innovative large company in America in Fortune magazine’s survey of Most Admired Companies. Yet within a year, Enron’s image was in tatters and its stock price had plummeted nearly to zero. Exhibit 1 lists some of the critical events for Enron between August and December 2001—a saga of document shredding, restatements of earnings, regulatory investigations, a failed merger and the company filing for bankruptcy. We will assess how governance and incentive problems contributed to Enron’s rise and fall. A well-functioning capital market creates appropriate linkages of information, incentives and governance between managers and investors. This process is supposed to be carried out through a network of intermediaries that include professional...
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...from The New Yorker January 8, 2007 DEPT. OF PUBLIC POLICY The Formula Enron, intelligence, and the perils of too much information. by Malcolm Gladwell 1. On the afternoon of October 23, 2006, Jeffrey Skilling sat at a table at the front of a federal courtroom in Houston, Texas. He was wearing a navy-blue suit and a tie. He was fifty-two years old, but looked older. Huddled around him were eight lawyers from his defense team. Outside, television-satellite trucks were parked up and down the block. "We are here this afternoon," Judge Simeon Lake began, "for sentencing in United States of America versus Jeffrey K. Skilling, Criminal No. H-04-25." He addressed the defendant directly: "Mr. Skilling, you may now make a statement and present any information in mitigation." Skilling stood up. Enron, the company he had built into an energy-trading leviathan, had collapsed into bankruptcy almost exactly five years before. In May, he had been convicted by a jury of fraud. Under a settlement agreement, almost everything he owned had been turned over to a fund to compensate former shareholders. He spoke haltingly, stopping in mid-sentence. "In terms of remorse, Your Honor, I can't imagine more remorse," he said. He had "friends who have died, good men." He was innocent—"innocent of every one of these charges." He spoke for two or three minutes and sat down. Judge Lake called on Anne Beliveaux, who worked as the senior administrative ...
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...BACHELOR OF COMMERCE YEAR 3 - ACADEMIC CALENDER | | | Appendix A: ASSIGNMENT COVER SHEET | | | | | | | | | | Date Received: ………………………….. | | | | Date Returned: ……………....………… | | | Programme | BACHELOR OF COMMERCE DEGREE | Module Name | BUSINESS MANAGEMENT 3 | Assignment Number | ASSIGNMENT 1 | Surname | De Villiers | First Name/s | Cornèl | Student Number | BCOM 1121041 | Date Submitted | | Postal Address | P O Box 252 | | Henties Bay | | Namibia | | 9000 | E-MAIL | | myregent email addresss | (Please note that confirmation of assignment receipt as well as | | return assignment will be forwarded to this e-mail address) | E-MAIL | renier@iway.na & Cornel.deVilliers@hbaymun.com.na | (alternate e-mail address) | | Contacte Numbers | Cell: 0812575079 | | Home: 064-500694 | | Work: 064-502022 | Alternate Contact: Name | Renier Henning de Villiers | Relationship | Husband | Contact Number | 0812403219 | | | I hereby confirm that the assignment submitted herein is my own original work. | | | | | Signature of Student: | ……………………………………………………………….Date: ……………………………….. | BUSINESS MANAGEMENT 3: ASSIGNMENT 1 Table of Content: Question: Page: Question 1 3-6 Question 2 7-9 Question 3 10-12 Question 4 13-14 Bibliography 15 QUESTION 1: (40) Read the...
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