Week 4 Tutorial
1. What is Hypothetical Future Value (HFV)? How did this contribute to Enron’s downfall?
A: Hypothetical Future Value can be defined as the value has not been earned but it is believed to be received in the future. The Enron used fair value accounting to make the balance sheet and, the money which has not been earned was written down as profit. For example, if a house worth $10,000 today, and the price increases to $20,000 tomorrow, however, if do not sell this house, there is no profit. It only has capital holding gain. If fair value accounting is used, it only has comprehensive income but operating profit. However, Enron wrote down the comprehensive income as operating profit. Due to this, it can be said that Enron cooked the books. Therefore, Hypothetical Future Value contributes to Enron’s downfall.

2. Why would ‘good’ people engage in unethical activities in business?
A: There are several reasons for that. To begin with, obedience to authority, it means that those people who may not have enough knowledge to judge something or may feel indecisive when they do not have sufficient experience, they are willing to take those people who have a better understanding on it and those people who can play a lead role on it, for instance, specialists’ and boss’s advice usually is willing to be taken. Therefore, it is not hard to explain why good people would engage in unethical activities, in terms of obedience to authority, because those good people may not have a clear sense of the activity, they are easier to take those advice which looks right. Secondly, Consensus/Peer Pressure, it is simple to know that sometimes the person you work with can have an important effect on your behavior. For example, if most of people believe more money can be invested into one company, however, you may have an opposite idea about that. At this moment, it will be hard