...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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...1. What did Arthur Andersen contribute to the Enron disaster? Arthur Andersen (AA) contributed in several ways to the disaster of Enron. AA collected fees for consulting advice and approved as auditors and consultants the structure of Special Purpose Entities (SPE). The SPE’s were used to hide Enron’s true financial situation. False profits were generated, losses were hid, and financing was kept off of Enron’s consolidated financial statements. The auditors did not enforce Enron to institute internal controls and failed to abide by Generally Accepted Accounting Principles (GAAP). AA did not warn Enron’s audit committee that there was a significant conflict of interest involving Andrew Fastow, Enron’s CFO and his helpers. Obstruction of justice was committed by shredding Enron’s audit papers leading to imprisonment charges. Transactions conducted between Enron’s, and the SPEs were not in the best interest of the shareholders, for example profits and cash flow were swayed and clearly inflated. This misled investors. The above are just to name a few contributions to Enron’s downfall. 3. What was the prime motivation behind the decisions of Arthur Andersen’s audit partners on the Enron, WorldCom, Waste Management, and Sunbeam audits: the public interest or something else? Cite examples that reveal this motivation The prime motivation behind the decisions of Arthur Andersen’s audit was profit and greed and was not in the best interest of the public. The leaders of...
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...Enron's fate when Chairman Byron Dorgan (D-ND) compared the company to the Titanic. "In the Titanic," he said, "the captain went down with the ship. And Enron looks to me like the captain first gave himself and his friends a bonus, then lowered himself and the top folks down the lifeboat and then hollered up and said, 'By the way, everything is going to be just fine.'" But there is, in the Titanic cast of characters, a good analog for the Enron leadership. While the captain, the first officer, and the Titanic's designer did go down with the ship, there was one honcho whose behavior was more like the Enron executives': J. Bruce Ismay, director of the White Star Line, which built and ran the Titanic. Ismay was a passenger on that fateful voyage, and some said he encouraged the high speeds that contributed to the collision with the iceberg. Yet he hopped into a lifeboat early on in the disaster. Shades of former Enron CEO Jeffrey Skilling, and Enron Chairman and former CEO Kenneth Lay. At the same time as these gentlemen were shouldering their way into the lifeboats, they were interfering with the evacuation of their workers. At this week's hearing, Senator Barbara Boxer played a videotape from a 1999 employee meeting where Skilling smiles and nods at the suggestion that employees put all their 401(k) retirement money into Enron stock. That was certainly not Skilling's own strategy. He sold 39 percent of his holdings, or $67 million worth of his stock, before the company disclosed...
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...A CASE ANALYSIS Of Enron SUBMITTED IN PARTIAL FULFILLMENT OF MBAC422: Business & Society Case 2 BY RAHUL DADA 2011H149219 UNDER THE SUPERVISION OF Prof. Anil K Bhat & Dr. Sarvesh Satija Management Department BIRLA INSTITUTE OF TECHNOLOGY & SCIENCE PILANI, RAJASTHAN – 333031 1 Introduction Enron Corporation was an American energy, commodities, and Services Company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, it was revealed that it’s reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the Enron scandal. Enron has since become a popular symbol of willful corporate fraud and corruption. The scandal also brought into questions the accounting practices and activities of many corporations throughout the United States and was a factor in the creation of the Sarbanes–Oxley Act of 2002. The scandal also affected the wider business world by causing the dissolution of the Arthur Andersen accounting firm. The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company...
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... Erik Seigle Law 2150 11/24/15 Ethics Reflection Enron was a company that reached dramatic heights, only to see itself crumple from within through lies and deceit. Enron created a corporate culture that thrived on competition and was often seen as arrogant. The story of Enron ends with one of the largest bankruptcies in american history. The collapse of Enron affected the lives of thousands of employees, pension funds, and ultimately shook wall street to its core. Many people still wonder how a company so powerful fell so quickly. Enron’s demise was a result of the greed of a few Enron executives who were unwilling to see their company fail. They used marktomarket accounting which recorded the expected future revenue from a longterm deal (seabury). These deals often resulted in losses, not revenue. This caused Enron to accumulate massive amounts of debt which they tried to hide from the public. Eventually the truth would come to fruition. Enron was a company built on lies and deceit. Their stockholders and employees, like the prisoners in Plato’s cave myth took all the information they were provided at face value. Employees believed in Lay as he frequently encouraged them to “talk up” the stock, and spoke of the safe and sound trajectory of the company. Unfortunately for the employees, they had to stand by helplessly and watch their retirement funds evaporate while top Enron officers cashed in on their lucrative stocks 2 ...
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...Ethics. The ethics of many American companies are not law but should be treated as such however these regulations are rarely followed and sometimes not followed at all. The risks that companies have been taking to increase profits and put more money into the CEO’s pockets use illegal actions. In recent times, companies such as Enron, Wal-Mart and BP have been guilty of multiple charges against ethical principles which have led to bankruptcies, housing market crashes and environmental disasters. The most famous case related to Enron and their aggressive accounting practices of reporting losses as profits to keep the stock price high. This act ultimately led to the bankruptcy of the company. Enron was founded in Omaha, Nebraska by Kenneth Lay in 1985. It was an American energy, commodities and services company based in Houston, Texas. Enron was once viewed as one of the best companies in America during its initial years of operation. Fortune magazine named Enron “America’s Most Innovative Company” for six consecutive years. Enron employed 20,000 employees, owned multiple pipelines and power plants in addition to a stock price that hit a peak of $90. Enron had an extensive code of ethics policy. This policy was 64 pages long and described each policy and the consequences for breaking them. All aspects of the company made it look like the shining star they wanted to people to believe. What was actually going on...
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...The Fall of Enron 1. Introduction 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) Enron, which once ranked as the seventh-largest company on the Fortune 500 and ranked as the sixth-largest energy company in the world, on December 2, 2001, filed for bankruptcy protection in the biggest case of bankruptcy in the United States up to that point (Jennings, 2009, p. 285). By November 2001, the company’s stock, which once peaked at $90 US, was down to less than $1 US. It was a disaster for the thousands of employees and investors (Skilling v. United States, 2010). Employees lost their jobs and pensions, and investors lost billions of dollars. The Enron scandal is one that left a deep and ugly scar on the face of modern business. In this article, the facts of Enron’s case were reviewed and the major ethical issues involved in Enron’s scandal were analyzed. The rest of the paper is organized as follows. The second part is a brief summary of what has happened in Enron. The third part described the role of Arthur Andersen (AA) in the Enron scandal. In the following parts the culture of Enron, the important people involved in this case, and also the major ethical issues about this scandal were analyzed. At last, the conclusion...
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...The Ethics of Enron: A Corporate Disaster Racheal D. Smith Salem International University The Ethics of Enron: A Corporate Disaster Ethics, as stated by Dawn D. Bennett-Alexander and Linda F. Harrison in The Legal, Ethical & Regulatory Environment of Business in a Diverse Society, are considered subjective laws as well as a how-to-guide for businesses in how they conduct themselves with their suppliers, customers, employees, and anyone else they do business with (2012). It is not enough to know how to run and conduct business, it is also important that good judgment, situational experience and common sense be used in order to be successful and remain that way. There have been companies in the past who have not exercised good ethics and have paid the price for their folly. It was not only the CEO’s and the upper echelon who suffered, though they may have received the brunt of it, but also those employed by the company. This is true in the case of Enron. Enron was a company who “marketed electricity and natural gas, delivered energy and other physical commodities, and provided financial and risk management services to customers around the world (Enron Fast Facts, 2015).” Enron was formed in July of 1995, after the merger between Houston Natural Gas and InterNorth out of Omaha with the help of Kenneth Lay and became the sixth largest company in the world that provided energy (Enron Fast Facts, 2015). It was due to Ken’s ambition to turn the stable business from...
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...Wk2 checkpoint Read the Arthur Andersen’s Troubles Ethics Case on pp. 107–113 (Ch. 2) of the text. Answer questions 1, 3, and 4 on p. 113 in 200 to 300 words. When responding to question 3, focus solely on the Enron case. Questions 1. What did Arthur Andersen contribute to the Enron disaster? I found an article in Time Magazine that discusses the fact that Andersen employees followed instructions from Enron executives to destroy documents. The Wikipedia article that I found lists the fact that Enron’s “nontransparent” financial statements “did not clearly depict its operations and finances with shareholders and analysts”. Wikipedia also mentions complex business models and unethical practices, including a modified balance sheet so that it portrayed a more favorable depiction of its performance. 3. What was the prime motivation behind the decisions of Arthur Andersen’s audit partners on the Enron, WorldCom, Waste Management, and Sunbeam audits: the public interest or something else? Cite examples that reveal this motivation. It sure seems to me that at least in the Enron case, if Andersen’s employees destroyed documents as discussed, they were certainly not acting in the interest of the public. Actions like that could only be meant to help the company interest in attempting to avoid prosecution. Much less the possibility that financial documents were potentially modified to hide the real transaction histories. 4. Why should an auditor make decisions...
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...exaExamining a Business Failure: Enron Examining a Business Failure: Enron Most people today have heard of the big Enron scandal through various different forms of entertainment such as television, radio, and the internet. Even those business people that never have time to watch the news heard some bits and pieces of the rise and fall of Enron. The basic issue that got Enron in trouble to begin with was the lack of good leadership and management. We know that insider trading is an unethical business practice. With that said, the big business executives and other members of the administration team at Enron had unethical business practices, and only one of those being insider trading. This paper will discuss the contributions of leadership, management, and organizational structures that led to the demise of Enron. Leadership, Management, and Organizational Structures Leadership has many definitions. According to Yuki, (2006) leadership is behaviors, influence, interaction patterns, role relationships, and occupation of an administrative position (p. 2). With this definition in mind, the average person can see the clear issues behind the fall of Enron. Csorba (2006) states that Enron’s management was built based on deception and lies. Even though some of the Enron leaders knew fraud and deception was taking place, like lifting conflict of interest rules for the CFO, they continued to look the other way and continued their employment and working dishonestly. One of the many...
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...Examining a Business Failure: Enron Examining a Business Failure: Enron Most people today have heard of the big Enron scandal through various different forms of entertainment such as television, radio, and the internet. Even those business people that never have time to watch the news heard some bits and pieces of the rise and fall of Enron. The basic issue that got Enron in trouble to begin with was the lack of good leadership and management. We know that insider trading is an unethical business practice. With that said, the big business executives and other members of the administration team at Enron had unethical business practices, and only one of those being insider trading. This paper will discuss the contributions of leadership, management, and organizational structures that led to the demise of Enron. Leadership, Management, and Organizational Structures Leadership has many definitions. According to Yuki, (2006) “leadership is behaviors, influence, interaction patterns, role relationships, and occupation of an administrative position” (p. 2). With this definition in mind, the average person can see the clear issues behind the fall of Enron. Csorba (2006) states that Enron’s management was built based on deception and lies. Even though some of the Enron leaders knew fraud and deception was taking place, like lifting conflict of interest rules for the CFO, they continued to look the other way and continued their employment and working dishonestly. One of the many...
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...Impacts of Unethical Behavior I chose to discuss the unethical behavior done by the company Enron. This company made many wrong choices by shredding and hiding the truth of their documents. Which not only affected their employees but put their 89 year old company to a stop. All accountants from this company were charged with altering inaccurate financial information about the companies they were representing. The trouble all started when the managers on Enron chose to provide false income statement figures. This ended up turning into a multi-billion dollar disaster for the company. They made the decision to do this in order to attract new investors. Once they took this step there was no going back. The Arthur Andersen accounting firm was a major contributor in this huge scandal, they led the assistance to the false documentation of Enron. Enron also had other accounts with other companies that they credited to aide in hiding the losses and debts that had been accumulated. All these choices led to the collapse of the company. If I had been an accountant of the company, I would have left to be honest. I would never feel right to scam anyone else, and I believe no other company should even if they are just trying to attract more investors. All accountants were charged in this case, and I do not personally think any company is worth going to jail over because they wanted to scam other companies and make more money. I would have brought it to their attention and if I felt...
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...Checkpoint: Impact of Unethical Behavior ENRON would be a vivid example for individual’s immoral behaviors that affect millions of people for a long time. A lot and must accountants will be charged for preparing accurate financial information for companies and businesses and for whoever they work that examine. Investor’s can only see the internal management and they use the resource by the company that’s why investor’s rely big on that type of information. It’s very important that investors have the right information, if not then it will make a informed decision whether to invest in a company or not to invest. Finding poor manager that has authority is very common in the current day and age. The mangers will ultimately have affect on the millions of people and they will have the best potential to hurt many people. Begin at ENRON is trouble for poor manager because they act unethical by giving poor and false income statement figures to whom they are working with. This act blows into a multi-billion disaster, and they made the decision so they can attract for new investor’s however when they take act doing so they will find that is will step them back more. Companies will collapse and they will lose billions for investor’s. Arthur Anderson is a major contributor scandal to the accounting firm. With the assistance within the falsifying ENRON they added more to the fire for overstated that the company income, equity value. Later on ENRON revealed they were involved into a partnership...
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...about certain issues regarding the way they practice business. Another example of unethical practices would be insider trading, security fraud, and manipulation of the financial market. In some cases, unethical practice occurs because of greed, a sense of disconnection, and a sheer sense of ignorance. In this analysis, we will discover why, how and what business has ventured in this path of dishonesty. A prime example of this would be the Enron Corporation, which existed through the means of accounting and security fraud. Some brief information on the Enron Corporation is that it was “A U.S. energy-trading and Utilities Company that housed one of the biggest accounting frauds in history. Enron's executives employed accounting practices that falsely inflated the company's revenues, which, at the height of the scandal, made Enron become the seventh largest corporation in the United States. Once the fraud came to light, the company quickly unraveled and filed for Chapter 11 bankruptcy on Dec. 2, 2001.” (“Investopedia: Enron, 2013.) As Enron began to unravel, there were numerous reports of more accounting fraud involving Enron’s accounting firm Arthur Andersen and how they failed to disclose Enron’s debts and losses that it grieved with were not reported on Enron’s financial statement. “The reason to Enron’s failure is because of the moral behavior of accountants and managers. The accountants were both self-satisfied and incompetent enough to certify Enron’s financial...
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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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