The greed that was evident did not benefit any one party at all. When the company shares lost ground in trading, the Securities and Exchange Commission (SEC), the Texas State Board of Public Accountancy and the US congress were on hand to instigate reforms that had the aim of ensuring that occurrences like those at Enron could not occur again. Arthur Andersen, the auditor at Enron, could be said to have received what it deserved in terms of being forced out of the market place due to bankruptcy. Additionally, the audit firm became a template of negative audit firms. The US federal government crafted regulatory legislation that is being taken up by other countries to prevent such occurrences in the future. For example, Mexico adopted those regulations in 2006 popularly referred to as the Sarbanes-Oxley Act. Discussion Enron as a corporate entity was not guilty of any major crimes that were blatantly obvious. On the most part, the company was indicted for misleading the outside forces charged with consulting for it and also misrepresented its financial situation1. These misrepresentations and falsehoods cannot entirely be considered as crimes. On the contrary, fraud can be considered as a crime but the very act of proving a criminal intent to defraud is very difficult. On the other hand, Arthur Andersen was convicted of a repeated single crime which entailed the obstruction of justice. This was largely due to the destruction of Enron documents that the audit firm continuously did. The shredding of those documents, which the accounting firm was well aware could be used in an SEC investigation, was in itself a crime. The case of Enron led to a number of individuals that were charged with different tasks to be charged with serious crimes with some of them pleading guilty to some. Mostly, many pleaded guilty with conspiracy to mislead that they did by presenting unfair reports on the company finances. Both Enron and Andersen had total disregard for any ethical conduct that was expected of them. There is no need for detailed presentation of the breaches in ethics as they were pretty blatant. This discussion is not focused on ethics despite the fact that legal ethics, financial analysis ethics and banking ethics were totally disregarded. Since the breach of ethics is not a crime, it is not pertinent to dwell on it. Enron is clearly in violation of the guidelines that are laid out in the Generally Accepted Accounting Principles (GAAP)2. There are three instances of the breach of GAAP that are notable in the conduct of Enron. The first is that the Special Purpose Entities? (SPEs) accounts were incorrect. The equity method of accounting was selectively utilized in the SPE accounting as well as the failure of consolidation and failure of the elimination of the impacts associated with the transactions carried among the entities. The second is that there was partial disclosure of accounts and the last is that the financial reporting was not fair. In doing the above, Enron and Andersen can be thought of having viewed GAAP as being merely rules and not regulations. They also leaned towards the interpretation of GAAP in a more aggressive manner than normally envisaged. Additionally, they disregarded the fairness principle that is central to GAAP and in doing this, they ignored the fact that fairness is emphasized more that rules as well as accounting that focuses on the economic
The Case of Enron and Arthur Andersen Name: Course name: Course instructor: Date: Introduction From a moral standpoint, the massive greed, lack of ethics and collusion among the auditors, company officials, legal counsel engaged, investment firms and bankers of Enron, the greatest losers were shareholders, creditors and employees of the company…
What Companies Can Learn From The Enron Case and The Impact of the Enron Case?
Enron Corporation was a reputed American energy, services and merchandise based organisation establised in the year 1985 by Kenneth Lay. It was situated in Houstan, Texas of the United States (US).
By 1989, it had begun trading natural gas commodities and by 1994 it entered the market for trading electricity (www.mbaknol.com, 2011). Before Enron got into the troubles of “accounting scandal”, it was operating well and even had become one of the top companies in the world.
The Enron scandal had veritably opened a can of worms in the corporate world and laid bare to the public insidious corporate practices that were made tools of deceit and conceal the truth from the public. Enron had evidently breached the line of corporate ethical correctness in the name of profits and more profits without taking into account the welfare of its shareholders and employees, who had to shoulder the losses that the company’s bankruptcy engendered.
It is a well recognised fact that for a company to be successful it needs to protect the interest of the stakeholders, employees, internal as well as external customers and the environment in and around the company (Broadley, 2006). Foreign investors feel better in an environment where the basics of the corporate governance is defended and practiced.
One of the environmental changes that occurred over the organization’s life was the legislation in the 1930s that required listed companies to submit their statements of financial position. This shifted attention to the Anderson whose decision into ethical practice led to the legislation.
The paper operates mainly based on research questions which can be stated as follows: How did the corporate culture of Enron contribute to its bankruptcy? Did Enron's bankers, auditors, and attorneys contribute to Enron's demise? If so, what was their contribution? What role did the chief financial officer play in creating the problems that led to Enron's financial problems?
This study discusses what happened with Enron, defines the problems that plague the high profile corporation, present solutions and alternatives, as well as give a sweeping opinion on how the problems could have been solved or avoided in the first place from this researcher's perspective alone.
They say that accounting is the language of business. A German investor would be ably informed of how the United States company Kentucky Fried Chicken or any other enterprise has performed in terms of generating profits. The accounting language has its own set of technical words that a person studying basic accounting would easily understand.
A conscious effort to systematize the effort and to manage its evolution is preferable to an unmanaged and haphazard evolution. For Arthur Andersen, the basic planning problem is how to allocate the organization's limited resources. The major benefits to be expected from planning include an improved sense of direction for the organization, better performance, increased understanding of the organization and its purpose, earlier awareness of problems, and more effective decisions.