...ENRON AND UNETHICAL BEHAVIOR By SHERNITA JONES INSTRUCTOR ALFRED GREENFIELD ACC 557 FINANCIAL ACCOUNTING 10/27/2013 This paper will describe the following: 1) Corporate ethical breaches in recent times, assess whether or not one believe that current business and regulatory environment is more conducive to ethical behavior. 2) Describe the organization, the accounting ethical breach and the impact to the organization related to ethical breach. 3) Determine how the organization ethical issue was detected and how management failed to an ethical environment. 4) Analyze the accounts impacted and / or accounting guidelines violated and the resulting impact to the business operation. 5) As CFO, recommend which measures could have been taken to prevent this ethical breach and how each measure should be implemented in the future. Establishing principles for ethical behavior frequently starts with a policy on ethics. Businesses acquire a policy on ethics to guide their measures and to set up a general meaning of correct versus incorrect. According to the American Library Association, code of ethics is a handbook for suitable behavior (2012). Given the corporate ethical breaches in recent times, existing businesses and regulatory environment is more conductive behavior because some companies and managers feel as though they can get away with it. The unpredictable increase and collapse of the Enron Company set off a...
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...Ethics Paper Regina Zamora-Chilin MGT/498 November 20, 2011 Professor: Dr. Earl Levith Ethics Ethics as will be described in this paper pertains to the social responsibility that any business must possess at the time of developing a strategic plan while considering stakeholder needs and agendas. This paper will discuss the Real Estate sector of the United States’ economy as well as a well known company called Enron, and its questionable overstep into unethical practices on various levels that brought forth government interference. For Enron, it is through the Sarbanes-Oxley Act (SOX) that all businesses are measured to prevent and avoid unethical situations from taking place. The Role of Ethics The role of ethics and social responsibility has increased tremendously over the past decade for the majority of corporations. In the past, corporations have probably not paid enough attention to doing what is socially responsible because there were no strict government guidelines to follow. Even though the United States is a rule-based country, corporations have in past years managed to mishandle corporate standards. Ethics and social responsibility forces corporate employees at senior levels to stop and examine their activities in an effort to reduce violating the law. If executives are able to identify unethical practices then they will do ‘the right to set preventive measures or disciplinary actions to employees who are not in compliance with the corporation’s standards...
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...Organization One of the world’s leading electricity companies, Enron Corporation, suffered from a financial scandal, which involved the corporation and its accounting firm. The scandal happened during the 1990s and was a result of irregular accounting procedures. This scandal caused Enron to file bankruptcy in December 2001 (Thomas, 2002). The subject of this paper will discuss how organizational behavior theories could have predicted or explained Enron failure. This subject of this paper will also compare and contrast the contributions of leadership, management, and the organizational structure of Enron, which to the corporations failure. Organizational Behavior Organizational behavior is the field of study that investigates the impact that individuals, groups, and structure have on behavior within the organizations for the purpose of applying such knowledge toward improving an organizations effectiveness; specifically organizational behavior focuses on how to improve productivity, reduce absenteeism, turnover, and deviant workplace behavior, and increase organizational citizenship behavior and job satisfaction´ (Robbins & Judge, 2007). Organizations have a structure that consists of board of directors, senior leadership, external auditors, and internal auditors. The CEO runs the company, but board of directors and senior leadership are also involved in the decision-making process. Monitoring the corporations system is completed by the auditors. All these leaders have...
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...Title of Paper : Examining a Business Failure Name: Steven Turyahika Course: LDR/531 Organizational Leadership. Date: 05/08/2010 Instructor Name : Professor Paul Wallace Introduction This paper examines a business failure that occurred at Enron Corporation, an American energy company based in Houston, Texas. The corporation was formed in 1985 by Kenneth Lay after the merger of Houston and InterNorth natural gas pipeline companies. In the early 1990s when the federal government deregulated energy production, the company was able to thrive due to expanded markets that enabled the corporation to sell energy at high prices. By 1992, Enron had become the largest merchant of natural gas in North America and the gas trading business became the second largest contributor to Enron’s net income, with earnings before taxes and interest of $122million (Wikimedia Foundation, Inc, May, 2010 ). In an attempt to achieve further growth, Enron pursued a diversification strategy and by 2001, Enron had become a conglomerate that both owned and operated gas pipelines, pulp and paper plants, broadband assets, electricity and water plants internationally. The corporation also traded in financial markets for the same types of products...
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...Enron Corporation (Case 1.1) Most of us work from rags to riches but this is not the case of the Enron Corporation. Instead of becoming the nation’s greatest company, Enron instead laid claim to being the largest corporate bankruptcy in the history. The greediness and egotism wiped out the honesty and integrity that should instill on the persons who were involved in this case. Arthur Edward Andersen built his firm, Arthur Andersen & Company, into one of the largest and most respected accounting firms in the world through his reputation for honesty and integrity. His motto was “Think straight, talk straight” and he insisted that his clients adopt that same attitude when preparing and issuing their periodic financial statements. Arthur Andersen’s auditing philosophy was not rule-based; instead he invoked a substance-over-form approach to auditing and accounting issues. He avidly believed that the primary role of the auditor was to ensure that clients reported fully and honestly to the public, regardless of the consequences for those clients. Ironically, Arthur Andersen & Co.’s dramatic fall from eminence resulted from its association with a client known for aggressive and innovative uses of “accounting gimmicks” to window dress its financial statements. Enron Corporation was the second largest client of the firm and was involved in large, complex transactions with hundreds of special purpose entities (SPEs) that it used to obscure its true financial condition and...
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...Incorporation. With the merger they both combined to own around 40,000 miles of pipeline and shortly after they changed their name to Enron. Around that time Washington was being lobbied by energy corporations to deregulate business and let companies set their own prices. Energy companies said this would not only lead to the end of monopolies but the extra competition would benefit companies and consumers. Over the next several years Washington began to lift controls on who could produce energy and how it was sold. With an influx of new suppliers energy prices were very unstable. With these deregulations Enron was allowed to sell natural gas on an open market such as oranges and wheat. With this new way of business Enron was able to grow into the seventh largest company in the United States with over 25,000 employees in over thirty countries. It became an innovator in gas trading and technological advances in the energy field. In 1990 Enron hired Jeffery Skilling as the company Energy's Trading Operation Consultant. At age thirty-six Skilling was able to create the "Gas Bank". The "Gas Bank "is when a company buys large volumes of gas from producers and resells it to industrial customers at long term contracts. This helped stabilize the gas market which was very volatile at the time. It also helped expand gas production nationwide and helped Enron grow to a major player in the energy industry. As Skilling went up in rank he started to get the company involved in risky investments...
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...STUDY:- Once the seventh largest company in America, Enron was formed in 1985 when InterNorth acquired Houston Natural Gas. The company branched into many non-energy-related fields over the next several years, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Although their core business remained in the transmission and distribution of power their phenomenal growth was occurring through their other interests. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. Then came the investigations into their complex network of off-shore partnerships and accounting practices The saga of the ENRON Corporation has been unfolding in the media for well over a year. In the span of only three years, ENRON has gone from public and professional acclaim of the company and its senior executives to scorn, infamy and bankruptcy. Its public auditing firm, Arthur Andersen, has basically been destroyed, as well as publicly disgraced. Tens of thousands of employees and investors have been emotionally and financially affected. Major financial services firms in banking, securities brokerage and insurance have been, and may yet be, drawn into the legal battles regarding who is to blame for the ENRON failure. Enron grew wealthy due largely to marketing, promoting power, and its high stock price. Enron was named "America's Most Innovative Company" by Fortune...
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...Introduction This paper will show how external and internal issues affect the managemet functions of the Enron Corporation. Enron’s business strategy was to control all of the enery supplies without owning all the power plants. as a substitute, Enron would use contracts to have power over the services in which other companies had invested their hard earned money. The paper will describe how the management functions which consist of controlling, leading, organzing and planning are utilizrd by Enron. Enron Corporation is the world leading electricity, natural gas, pulp and paper and communication company. Stakeholders and employees lost large sums of money in the Ernon scandel. The top exectives were able to cash out before the scandel was publizeised. Enron became known as the Enron Scandal because of a creatively planned accounting fraud. The paper will also address globalization, technology, innovation, diversity and ethics and how they affect the management functions of Enron. The paper will show how supervisors will use delegation to control the different causes and purposes listed. The Enron history is not plainly a story of a isolated business that steped into thee fire and got burned. Enron got just what they describe. Enron was able to take large chances while keeping shareholders in the dark because it could expolit accounting loopholes for subsidaries that are available to most openly traded companies. Companies like Enron can legally cover up large debts...
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...Final Paper I have selected the non-fiction book named ‘The Smartest Guys in the Room’ written by Bethany McLean and Peter Elkind. The book is based on the The Amazing rise and Scandalous fall of the Enron Corporation. Enron Corporation was an American energy, commodities and service company based in Houston, Texas. Before its bankruptcy in December 2, 2001, Enron employed more than 20,000 employees and was one of world’s major electricity, natural gas, communications and pulp and paper company with claimed revenues of nearly $111 Billion during the year 2000. In 1985 Kenneth Lay (the founder of Enron Corporation) merged the natural gas pipeline companies of Houston Natural gas and Internorth to form Enron. Enron was named by the Fortune magazine as ‘America’s Most Innovative Company’ for six consecutive years. Enron became the largest seller of natural gas in North America by 1992, its trading of gas contracts earned $122 Million (before interest and taxes) the second largest contributor to the company’s net income. The company’s founder Kenneth Lay helped to initiate the selling of electricity at market prices, and soon after the United States Congress approved legislation deregulating the sale of natural gas. The resulting markets made it possible for traders such as Enron to sell energy at higher prices, which significantly increased its revenue. In an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated a variety of...
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...Ethics Paper Iris Dalton MGT/498 August 4, 2011 Dr. Don Wicker Ethics Paper Organizations should be cognizant of business ethics at all times and not solely focus on generating the highest returns for its owners and shareholders. Businesses should operate ethically to achieve the maximum amount of return. The business should not only focus on running the company only by law but to serve local communities and seek to help its employees lead a better life. This can be achieved by examining each decision made based of long term business values, profitability and social responsibility. Explain the role of ethics and social responsibility in developing a strategic plan Corporations have responsibilities to society that should extend past making a profit. You often find corporations are criticized for making unethical decisions because it can be differences in values between business people and key stakeholders. It is common to see that some business people may believe in profit maximization and is the key goal for the company while others have other interests for the company. Both Milton Friedman and Archie Carroll have their views on responsibilities of business firms to society. Friedman’s view of business responsibility states the company has a motive and does not think about economical responsibility and this could harm the society the firm is trying to help. Friedman refers to social responsibility of business as a fundamentally subversive doctrine. Archie...
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...| The Enron Scandal | | Introduction Enron Corporation was an American energy, commodities and services company based in Houston, Texas. From the 1990's until December 2001, Enron was famous throughout the business world and was named by Fortune as "America's Most Innovative Company" for six consecutive years. It grew wealthy due largely to marketing, promoting power, and its high stock price. Before its bankruptcy, Enron employed about 21,000 staff in forty countries and was one of the world's major electricity, natural gas, communications, and pulp and paper companies, which claimed revenues of $100.8 billion in 2000. Enron gave the illusion that it was a steady company with good revenue which was not the case, as a large part of its profits were made on paper through a creatively planned accounting fraud. Deep debt and surfacing information about hiding losses gave the company big problems and in the late 2001 Enron declared bankruptcy under the United States Bankruptcy Code. The collapse was followed by a series of revelations on how the executives manipulated Enron's success. The Fraud Schemes The Enron scandal, revealed in October 2001 was a management fraud involving top executives of Enron who deliberately manipulated the accounting structures in order to conceal their losses and debts so that the corporation appeared to be performing favourably. They adopted mark-to-market accounting, an accounting system based on market value, which was then inflated; the...
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...Ethics in Accounting By Pace University – New York Accounting for Decision Making, MBA 640 Fall 2011 Required Research Paper Page 1 of 11 Table of Contents Number Content Page Number 1 Introduction 3 2 Ethics in Accounting 4 3 Enron Scandal 6 4 Satyam Scandal 8 5 Conclusion 10 6 References 11 Page 2 of 11 Introduction • What is “Ethics”? Ethics, also known as moral philosophy, is a branch of philosophy that addresses questions about morality—that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc. Source: http://en.wikipedia.org/wiki/Ethics • What is “Accounting”? Accounting is basically maintaining and providing records of transfer of funds for an individual or business. All the data collected from these records are then summarized in form of reports and statements, which are used by outside parties and the company itself for various uses and analysis. Source: http://www.investopedia.com/terms/a/accounting.asp#axzz1fbCBL2q0 Page 3 of 11 Ethics in Accounting With many scandals and scams coming out regarding the unethical behavior of firms in terms of Business and accounting, higher authorities in governments across the globe are worried. These scams are disturbing and damaging the economy at large. When the economy is already sliding down, governments have started taking extra care and strict rules are being applied to control the damage...
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...Enron Corporation Scandal The Enron Corporation scandal, exposed in 2001, led to the downfall of the 7th biggest corporation of the world and carried the fifth largest auditing firm Arthur Andersen with it. The extremely complex fraud case was devised and led by top company executives Jeff Skilling, Andrew Fastow and Kenneth Lay. The executives used financial engineering to find loopholes in the system and cover their tracks, posting inexistent revenues and concealing debt. This paper discloses what happened to Enron Corporation and includes major legal issues top executives face. Enron was founded in 1985, and rose to become one of the world’s leading electricity and natural gas companies. It was pronounced by Fortune magazine as the most innovative company six times in a row. Which raises a question: what caused such a corporate giant like Enron to fall so fast? There are many factors that contributed to Enron’s demise, however the key factor, which enabled this elaborate scheme, was the mark to market accounting method introduced by Jeff skillet. Mark to market is a questionable accounting method, it requires the firm to post its theoretical future profits in the balance sheet once a long-term contract is signed. Executives at Enron used this to their advantage, posting unrealistic profits. One of the company’s biggest projects was the construction of a power plant in India, using mark to market, executives predicted profits in the billions, in addition they...
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...A. The Implications for corporate governance and financial institutions In Enron’s case, we may see that the principle weakness of corporate governance today is the excessive concentration of power in the hands of top management. Enron involve allegations of massive accounting fraud and huge losses in shareholder value. In May 2002, the Business Roundtable released its Principles of Corporate Governance. This is a set of principles intended to assist corporate management and boards of directors in their individual efforts to implement corporate governance best practices. 1) Role of CEO - i) The CEO, with senior management, operates the corporation on a daily basis. In addition to having the requisite skills and experience, the CEO should be a person of integrity who takes responsibility for the corporation adhering to the highest ethical standards. ii) CEO certification. CEO has to assess the adequacy of the procedures and the diligence of carrying out the procedures for verifying the accuracy and completeness of information provides to investors. 2) Role of board of directors – i) Effective directors are monitors the business operations. The board’s most important function is the selection, compensation and evaluation of a well-qualified and ethical CEO. ii) The non-management members of the board, under the oversight of a committee made up of independent directors, should annually review the performance of the CEO and participate with the...
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...ENRON SCANDAL Enron was formed in 1985 from merger of two companies; Houston Gas and InterNorth Inc. by Kenneth Lay. It grew to be among the highly innovative companies throughout 1990s. Its unique business strategy made it known. Initially, the company’s objective was to sell electricity and gas but by 1990s it had ventured into other businesses such as pulp and paper companies and communications . Its success was indicated by the rise in annual revenues; between 1995 and 2000 Enron recorded a revenue rise of $91 billion dollars. However in 2001 as notes accounting fraud was revealed in its financial reports. It was established that the company had indeed experienced a loss of more that $500 million dollars (Li, 2010) for the previous five years; contrary to its audit reports. The company fell bankrupt later in 2001. This essay examines the scandal, its effects and critically gives an ethical analysis of the situation. Enron scandal is the worst to have ever happened in the US business industry. Enron’s bankruptcy was a result of accounting fraud which was substantially institutionalized and creatively crafted within the management. The management focused on converting all the strategies into success to maintain their heavy compensations-through accounting manipulation; a greed financial officer with underground agreements to enrich himself; a collaborative law and auditing firms in Elkins and Arthur Andersen respectively; corrupt investment bankers- they structured...
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