...Enron as an ethical dilemma can only be described as a travesty. The violations of ethical code and moral obligation ceased to exist while the company was alive. A tremendous contributor to the scandal is Arthur Anderson, who was Enron’s outside auditor since 1985. Arthur Anderson was able to hide major losses from Enron. Many projects that had failed through Enron seemingly went unnoticed as they were covered up by Anderson. Not only was this illegal, but it was ethically wrong of Anderson and Enron to do. Most of what Enron did violated business legality. The decision to break these laws is surrounded by the unethical approach the company took in order to maintain company power. The categorical imperative of the energy giant is that in order to maintain power, we as a company must hide our losses. This is one of Immanuel Kant’s theories that focuses on imperatives and what human beings deem as necessity, and what actions must occur in order to reach ones goal. So in this case it is clear what Enron deemed as necessity. Next, I will talk about the utilitarian theory and how it relates to the ethical dilemma at Enron. Utilitarian is the theory in which we as people attempt to minimize the harm in our decision making process while also maximizing the good. In the case of Enron, executives, on the surface, may have acted in a utilitarian manner, but ultimately created more harm than good. The deeper levels of unethical behavior and illegal activity would show that Enron was...
Words: 660 - Pages: 3
...Manipulation Detection | Ratios | Enron | Benchmark | Red Flag | 1. Day’s Sales in Receivable Index | 1.375 | 1.465 | no | 2. Gross Margin Index | 2.145 | 1.193 | yes | 3. Asset Quality | 0.771 | 1.254 | no | 4. Sales Growth Index | 2.513 | 1.607 | yes | 5. Total Accruals to Total Assets Index | -0.012 | 0.031 | no | Red Flag Models | 1. Quality of Earnings | 4.882 | <1 | no | 2. Quality of Revenues | 0.913 | <1 | yes | 3. Sloan Accrual Measure | -0.029 | >0.1 | no | 4. Altman Z-Score Model | 2.42 | <1.8 | no | 5. Z-Score(Old Fraud Model) | 0.054 | >-1.99 | yes | 6. F-Score(New Fraud Model) | 1.85 | >1 | yes | Gross Margin Index The GMI ratio of Enron is 2.145, higher than the manipulator’s mean index. A higher GMI ratio means that the gross margin shrinks from last to this year. There could be earning manipulation since the gross margin drops. Sales Growth Index Enron’s SGI is 2.513 which show a big red flag of the company. People should be alerted by such a big increase in sales. There could be fake sales made by management. Quality of Revenues This ratio examines the quality of revenues by emphasizing on cash related to sales. Enron’s ratio is 0.913, lower than the benchmark 1. We could guess that manipulation of revenue recognition exists in Enron. Z-Score(Old Fraud Model) For Enron, the Z-Score is 0.054. X1 to X5 are 0.03, 0.049, 0.038, 0.087 and 1.539. The benchmark is -1.99. A bigger score means possibility of fraud...
Words: 698 - Pages: 3
...does Enron Corporation, one of the world’s major electricity, one of the world's major electricity, natural gas, and communications companies, with claimed revenues of nearly $111 billion during 2000, went bankrupt eventually. In this film, the interviewers narrated the process of bankruptcy. This is a famous scandal in accounting area and there are lots of illegal behaviors related. We can learn a lot from this scandal in order to behave legally and avoid losing money. Facts: Two years after the corporation founded by Kenneth Lay, there were two traders began betting on the oil markets and transferred the money they earned to the offshore accounts. Instead of fire them, Lay encouraged them to use this unethical way to make money for the corporation. Finally the two traders were fired since they gambled away Enron’s fortune. Then Lay hired Jeffrey Skilling as the new CEO. They began to use mark-to-market accounting, which allowed them to report the potential profits instead of the actual profits. In addition, the new CEO’s aggressive management idea which fires the bottom fifteen percent employees gave the employees incentives to make the profits better than the actual profits. Skilling hired more people to help him make money for Enron Corporation. Under the bull market, executives pushed up the stock prices and cashed in their multi-million dollar options. Even they suffered the poor performing, they still portrayed Enron was profitable. In 2000, Enron became...
Words: 1151 - Pages: 5
...Kovaleva Mary Assignment 3. Enron scandal Rise of the company Enron was an American energy company based in Houston, Texas. It was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. In 1985, Kenneth Lay merged the natural gas pipeline companies of Houston Natural Gas and InterNorth to form Enron. In the early 1990s, he helped to initiate the selling of electricity at market prices and, soon after, the United States Congress passed legislation deregulating the sale of natural gas. The resulting markets made it possible for traders such as Enron to sell energy at higher prices, thereby significantly increasing its revenue. After producers and local governments decried the resultant price volatility and pushed for increased regulation, strong lobbying on the part of Enron and others was able to keep the free market system in place. In just 15 years, Enron grew from nowhere to be America's seventh largest company, employing 21,000 staff in more than 40 countries. In an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants, and broadband services across the globe. The corporation also gained additional revenue by trading contracts for the same array of products and services it was involved in. As a result, Enron's stock rose from the start of the 1990s until year-end 1998 by 311% percent. By...
Words: 1505 - Pages: 7
...might come to an end. The Enron collapse and other civilizations such as Easter Island and the Sumerians show these patterns which caused a “dead end” for both. While the details of history never repeat themselves, the patterns of history do — with alarming regularity. The circumstances only seem new because they arrive in different wrappers. But the contents are the same. The same human character repeats the same behaviour, creating the same problems and stresses that we respond to with an old familiarity. There is a pattern in the past of civilization after civilization wearing out its welcome from nature, overexploiting its environment, over expanding, overpopulating. They tend to collapse quite soon after they reach their period of greatest magnificence and prosperity. Ronald Wright’s book A short history of progress explains civilizations such as the romans, Sumerians, and most notably Easter island that came to a collapse. Easter Island was a smaller society that eventually came to an end by exploiting resources that benefitted them in the short run rather than the long. This is what wright explained in the book to be a “progress trap”. “Progress trap is when human ingenuity, in pursuing progress, introduces a problem(s) that it does not have the resources or imagination to solve, preventing further progress.” Here is where a similarity between the huge 62 billion dollar company Enron and civilization Easter Island come into play. Both Enron and Easter Island both ran...
Words: 1552 - Pages: 7
...Accounting scandals such as Enron, Worldcom, and Tyco have destroyed major corporations and has severely shaken our confidence in business ethics and overall morals. A verse that comes to mind when you think about how these executives in those corporations have taken advantage of their employees, creditors, suppliers and other corporations in order to make extra profits and bigger bonuses is found in the book of Proverbs. According to the word of God in the New American Standard Bible (1995), “He who oppresses the poor to make more for himself or gives to the rich, will only come to poverty” (Pr 22:16). The book of Proverbs does not leave its readers wondering as to its purpose. At the very onset we are clearly told the author’s intention. Proverbs 1:2-6 tells us that the purpose of these proverbs is to teach people wisdom and discipline and to help them understand wise sayings. Through these proverbs, people will receive instructions in discipline, good conduct, and doing what is right, just, and fair. The book of Proverbs is simply about godly wisdom, how to obtain it, and how to use it in everyday living. This wisdom assumes that there is a right way and a wrong way to live. It gives direction to our lives and keeps us in step with the fabric of life that God has created (NASB, 1995). Proverbs 22:16 shows that we will seek others to satisfy our wants. This reliance on others usually goes past getting a helping hand or charity and turns to fulfilling our...
Words: 871 - Pages: 4
... | |Kent Vander Kamp | |7/12/2012 | In 1985 the Inter North Corporation and Houston Natural Gas merged together and formed Enron. The former president of Inter North, Sam Segnar became the president of the newly formed Enron. It was then that it appeared that the corporate culture had changed. Unlike Segnar's predecessor, Willis Straus who was loved by all within his company and achieved an open culture where employees were treated fairly Segnar was often disliked and held in disdain. It appeared that Segnar was an elitist who separated the working class from management so the newly formed Enron began its venture heading down the wrong road by dividing the working class and the elitist. As is seen in many corporate disasters the elitist spending was encouraged and recognized by the new CEO Segnar. (Madsen & Vance, 2009) Through this massive change within Enron its employees and peers developed a hatred for Segnar. This was seen as an opening or an opportunity for Ken Lay. Lay used this opportunity to propose a collaborative board between the two merging companies. This was not seen as unusual however Lay was surprised when Segnar accepted the proposal. However Segnar maintained a majority control over the board. Over a...
Words: 1401 - Pages: 6
...information that I did not know about at all before and to understand how accounting works outside of the classroom as I have been taught all about the concepts in the accounting classes I have taken so far. I would have never thought of the past repeating itself in the financial market world, but as the book talks about, the Arthur Andersen scandal that gave the creation of new acts and regulations such as the Sarbanes-Oxley act shows that unscrupulous behavior has existed way before companies such as Enron and WorldCom made world headlines when it was revealed that they had overstated their earnings. These scandals cots investors billions of dollars and shattered the dreams of thousands of people and their confidence in the nation’s security markets. (Never was I aware of the past repeating itself in a revolving financial market. I was more or less aware of how Sarbanes-Oxley came about after the fall of Enron, and the Arthur Andersen major part in helping the top executives at Enron forge numbers to increase its earnings. There is a phrase they have on Wall Street. It’s called raising the bar. If you can raised the bar, or brighten the outlook for your company, if you can see your growth accelerating, your stock will go higher and you will be given the currency to expand, acquire, and do whatever you want” (pg. 178.) This is the main reason why our noble citizens easily turned in to con men without hesitating and take advantage of good honest people. In the book, Berenson talks...
Words: 2114 - Pages: 9
...2. Arthur Andersen Contribute to the Enron Disaster AA was incapable to either spot or ignored Enron’s manipulation which allowed fraud to take place. AA did not provide opinion to Enron’s audit committee. The firm CFO and the assistants were involved in situations that resulted in a significant conflict of interest and AA have no alternatives approach to manage those conflicts. Even though AA had undertook Enron’s audit function responsibility, AA failed to advice on Enron’s internal controls and policies. As a result, Enron internal control and policies were inadequate to protect the interest of the shareholders. AA failures to bring these matters forward had permitted Enron to continuously manipulate the numbers and caused the public and stakeholders to be misled. 3. Arthur Andersen Faulty Decisions The culture of AA was changed from integrity and in technical competence towards revenue focus. This was due to the change in AA’s CEO to Joseph Berardino. Berardino was aggressive in revenue generation that changes AA culture. Hence, AA was concern with potential loss of revenues from clients. The issue in this case was the use of Special Purpose Entities (SPEs) for financial report manipulation that was approved by AA. SPE is a legal entity created for firm to isolate financial risk. The structure of Enron’s SPEs approved by AA were used for off-balance sheet financing, even though it failed to meet the required outsider 3% equity risk (Viktoriaovoian 2011)...
Words: 761 - Pages: 4
...The Rise and Fall of the Enron Corporation Malay Blama Leg 500 Summer Quarter Prof. D. F. Page Strayer University August 9, 2009 Abstract Enron was an American energy trading and communication company based in Houston, Texas. It was formed in 1985 by Kenneth Lay after merging with Houston Natural Gas and InterNorth companies. Kenneth Lay was originally the CEO of the Houston Natural Gas company prior to the merger. By the middle of 2000 Enron stock price hit all time high of $90.00 per share causing share holders to lose nearly $11 billion when it plummeted to less than $1 per share by the end of November 2001. Few years later following its formation when Jeffery Skilling was hired, he developed a staff of executives that through the use of accounting loopholes, special purpose entitles and poor financial reporting, were able to hide billions in debt from failed deals and projects. They were able to mislead Enron’s’ board of directors and audit committee of high-risk accounting issues as well as pressure what was supposed to be and independent Certified Public Accounting Firm, the Author Anderson, to ignore the issues. The corporation went bankrupt as a result of committing institutionalized, systematic and well-planned accounting fraud. Since its fall, Enron has become a symbol of corporate fraud and corruptions. Corporate governance structures have traditionally been a private matter between...
Words: 1304 - Pages: 6
...in Business Kathryn Sumner PHL/323 November 30, 2015 Chuck Thompson Current Ethical Issue in Business Enron had one of the biggest ethical scandals of the 21st century. The company’s unethical practices was the downfall of the company. Let’s start with a little bit of history about the company. Enron was formed by the merging of two different companies, Houston Natural Gas and InterNorth in 1985. Kenneth Lay was the chairman and Chief Executive Officer of Enron. Lay hired Jeffery Skilling and he developed a staff of executives who used accounting loopholes, special purpose entities, and poor financial reporting to hide billions of dollars in debt from deals and projects that failed (Biography.com, 2015). The impact to the company is very detailed and will be discussed throughout this paper. At first Enron was not financially stable for many years but it was able to survive. After the deregulation of electrical power markets in 1988 Enron quickly became a thriving company subsequently it went from an energy delivery to energy broker. With deregulation this allowed Enron to profit from the exchange and generating income from buying and selling companies. Over time the contracts became more diverse and more multifaceted. Enron’s services evolved and so did the culture of the company (Sims & Brinkmann, 2003). Skilling pushed more aggressively and he made Enron one of the biggest wholesaler of gas and electricity. They made $27 billion dollars in only four months. Skilling...
Words: 1851 - Pages: 8
...Corporate governance Estachy Simon Case Study : Enron Summary : I- Presentation and chronology II- The financial arrangement III- How the governance can explain it ? IV- Questioning the corporate governance model V- Conclusion I- Presentation and chronology: Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Enron employed approximately 20,000 staff and was one of the world's major electricity, natural gas, communications, and pulp and papercompanies, It was created in 1985, by the merger of the Houston Natural Gas company with InterNorth. This merger was management’s first attempt to develop a national pipeline system for natural gas. The following year, the former CEO of Houston Natural Gas, Kenneth Lay, became the chairman and CEO of Enron. At the beginning, its business model was very classic: production and transportation of gas, and distribution essentially on whosales markets. Quickly it became the major energy and petrochemical commodities trader in US. Throughout the late 1990s, Enron was almost universally considered one of the country's most innovative companies. The magazine Fortune named Enron "America's Most Innovative Company" for six consecutive years, from 1996 to 2000. In 1996, Jeffrey Skilling, old consultant of McKinsey, became the president and Chief Operating Officer of Enron, seven years after his enter his entry in the company. Enron has $40 billions in 1999, and $100 billions in 2000...
Words: 2407 - Pages: 10
...one-quarter of reported fraud is exceeding $1 million dollars. The accounting industry is constantly growing and changing. Consequently, difficult decisions have to be made every day. While accountants follow a simple code of conduct; nevertheless, due to the infamous scandal of Enron, the Sarbanes-Oxley Act of 2002 was constructed to reestablish confidence in the public marketplace. The importance of ethics and integrity are highly significant to individuals in this profession. In fact, ethical behavior in accounting is described as “societies accepted standards of moral behavior that is behaviors as right rather than wrong” (Nickels, McHugh, & McHugh, 2013, p. 91). Therefore, accounting as a whole plays a significant role in society and business. At one time, society considered professional accountants to have the highest standard in ethical and moral conduct. While maintaining accurate and truthful statements is an essential part of financial reporting; therefore, as a society as a whole it is essential that a professional accountant fully understand the importance of ethical values. One unquestionably problematic misconception is that ethics consist of moral situations rather than integrity and honesty. Integrity is an essential element of ethical values and can be seen as being honest and truthful. In the functioning of any professional service, an accountant shall maintain objectivity and integrity so; society and businesses depend on receiving accurate information...
Words: 1065 - Pages: 5
...* Enron Questionable Transactions Question 1 The question which segment of its operations got Enron into difficulties is simple to answer, everything. Almost every all segments of their operation were improper. First of all, they practice unethical and dishonest practices which victimized workers, consumers, taxpayers and stockholders. Enron created partnerships within their own organization which led to them creating new financial instruments, called SPE’s (special purpose entities) which was used to falsify the accounting. The improper financial reporting was to make the company look good, instead of assuring that the figures are accurate and reliable. Enron's legal department wrote up contracts that were irregular. Enron executives were so focused on the pursuit of profits, regardless of economic fundamentals. Enron had excesses of difficulties and they also cause their law firm and accounting firm to become involved in a web of dishonesty. Question 3 All of Enron’s directors were involved in the dishonest scheme and they understood how profits were not honorable. One of the directors, Andrew Fastow who was responsible in creating many of the partnerships such as JEDI, Chewco, Kopper & Dodson’s and Dodson Companies knew exactly how the profits were being made along with several other directors such as Ben F. Glisan, Jr., Jeffrey K. Skillings who was on the board of directors. These directors were all part of a financial scheme to continue to...
Words: 2117 - Pages: 9
...January 13, 2015 Instructor Ashram Chooniedass Ethic Business Paper Enron started out in 1985 as a merger between InterNorth and Houston Gas Company, the company’s innovation leads to huge success. By 2000 Enron announce revenue of one hundred million dollars in profit. This huge increase was due to the trading energy sector of the company, shortly after it announced that Enron had become the sixth largest energy company in the world. In 1996 Jeffery Skilling became the new CEO while In 2001 Kenneth Lay held the title of chairman of the board. Skilling made it very clear that his focus is on revenue and profit increase margin and had no interest in Enron’s cash flow (Houston Chronicle, 2002). Skilling created a competitive atmosphere driven by huge bonuses, under his leadership the human resources department provided cheat sheet to recruiters to hire individuals who portray the image of sharp-dressing extrovert. They focus on graduates from Harvard, Yale, Princeton, Rice, Northwestern, and other leading universities. (Houston Chronicle, 2002). Unethical behavior such a falsifying transaction to boost volume was done by traders frequently, hide huge losses from shareholders, they encourage employees to buy stocks and discourage them from reporting poor accounting practices. Enron issue had brought a lot of businesses down due to the unethical actions that took place in that organization. Enron, an energy firm in Texas, it was a company of high demands and a success to...
Words: 1780 - Pages: 8
