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Case Study: Ethical Behavior in Accounting and Financial Management - Essay Example

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Case Study: Ethical Behavior in Accounting and Financial Management

All these debts were covered by shareholders through affiliation with other companies, deceptive accounting and illicit loans. The major reasons behind the company’s bankruptcy can be associated with Enron’s management. Contextually, those who were responsible for managing the activities of the company had involved in transferring Enron’s fund to their personal accounts and made fake balance sheets to depict a rosy picture of the company’s financial health. The people involved in such unethical activities were none other than the company’s executives and auditors. The collapse of Enron occurred due to the reason that Enron’s executives failed to perceive the relevant ethical issues. The disparaging power of individual greediness and pride was exaggerated by the Enron’s corporate culture that supported creativity and risk taking (Johnson, 2003). 2. Analyses of Key Elements of Enron Scandal The Enron scandal had a major impact both internally to the organization including shareholders, directors and employees as well as externally to the organization comprising auditors, creditors and regulators. The major people who benefitted from Enron’s scandal were Enron’s senior managers Kenneth Lay, Jeff Skilling, Andrew Fastow and Arthur Anderson (Petrick & Scherer, 2012). Kenneth Lay was the Chief Executive Officer (CEO) and the Chairman of the Board of Directors of Enron from its creation in 1986 till 2001, when he stepped down as CEO but remained as Chairman. Kenneth Lay and Jeff Skilling were responsible for manipulation of firm’s statement of financial outcomes along with making false and misleading statements about the Enron’s financial performance. Andrew Fastow, Chief Financial Officer was found to be guilty related with participation in the manipulation of Enron’s financial statements through Special Purpose Entities (SPEs) under his control and self benefitted in violation of his responsibility to Enron’s shareholders through business with such SPEs (Monnet, 2006). Arthur Andersen, one of the world’s five leading auditing firms, was found to be guilty of making off-the book-partnership to conceal debt and augment executives’ wealth, destroying documents and obstructing justice (Petrick & Scherer, 2012). Enron’s top management’s involvement in such fraudulent activities destroyed their personal as well as business status. Both individual along with institutional investors’ incurred losses amounting to millions of Dollars as they were misinformed about the financial health of the company. Employees were also tricked simultaneously which resulted in evaporation of their retirement portfolios. The federal government was also affected because America’s political practice of chartering only enterprises that provide the public good was desecrated by enormous public stakeholder harm by few aristocratic mistreatments of power performed by wealthy elite (Petrick & Scherer, 2012). There were a number of conflicts of interest within the Enron scandal. Auditors were reluctant to disclose actual position of the company with a fear of losing their clients. At the same time, the executives were also lured towards making short-term gains rather than focusing on the company’s performance and ensuring greater return to shareholders. The top level managers and CEO were assigned to perform their tasks with utmost honesty and integrity. Simultaneously, they were responsible ...Show more


Case Study: Ethical Behavior in Accounting and Financial Management 1. Overview Enron Corporation founded in 1985 was a United States based energy company located in Houston, Texas. The corporation was the biggest independent developers and producers of electricity in the world…
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Case Study: Ethical Behavior in Accounting and Financial Management
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