...TAB B TOPICS: THE CASE OF ENRON REQUIRED: After reading the case and articles in the Tab B readings, answer the questions below. You should download this document and include the question above your answer to make it easier to grade. Your answers should be in complete sentences. Based on the nature of the questions, one or two short paragraphs for each question should be adequate. You should print out your article write-up and submit it in class on the due date. 1. What was the nature of Enron’s business in 1985? How about in 2000? In 1985, it was a natural gas pipeline company. By 2000, it built leading businesses in energy trading and international energy-asset construction. 2. How could Enron earn money by trading in gas contracts? They would buy natural gas at spot prices instead of bundles (which was what was required before the deregulation of gas). This made the price of gas more volatile. Skilling suggested that Enron sell the gas in long-term fixed-price contracts with customers. To prevent the company from losing money due to price fluctuations, Enron would also enter long-term fixed-price contracts with producers by using swaps and forward and future contracts to make sure it met the energy requirements of customers. 3. Enron expanded its trading model to markets other than gas. What other markets did they expand into? Were there any concerns from expanding to these other markets? They...
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...THE COLLAPSE OF ENRON & THE INTRODUCTION OF THE SARBANES OXLEY ACT BY TREVOR GARRETT 02/25/2011 Abstract Enron Corporation was one of the largest energy trading, natural gas and Utilities Company in the world that was based in Huston, Texas. The downfall of Enron is one of the most infamous and shocking events in the financial world, and its reverberations were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading companies in the U.S and considered among top 10 admired corporations and most desired places to work at. Its revenues made up US $139 to $184 billion, assets equaled $62 to $82 billion, and the number of employees reached more than 30,000 people in 20 countries around the world. While on the surface it seemed like the perfect Corporation, internally it had highly decentralized financial control and decision-making structure, which made it practically impossible to get coherent and clear view on corporations' activities and operations. Enron manipulated its books and assets to help it report steady profit growth to Stock Exchanges and Credit-rating agencies. Investors generally are not willing to pay as much for the stock of a volatile trading operation, and this gave rise to manipulations. This paper briefly describes the legal and ethical breaches by Enron, the key factors and events that led to its collapse and the passing of the Sarbanes Oxley Act as a consequence of such a catastrophe. The paper also discusses the...
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...The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron The tale of Enron is a story of human weakness, of hubris and greed and rampant self-delusion; of ambition run amok; of a grand experiment in the deregulated world; of a business model that didn’t work; and of smart people who believed their next gamble would cover their last disaster—and who couldn’t admit they were wrong.1 Once one of the country’s foremost companies in regards to earnings, innovation, and reputation, Enron seemed to have it all. No one would have ever suspected that the company was billions of dollars in debt. Those at the top frequently assured everyone that all was well. No one thought to look any further. And therein lies the problem… While there is an endless list of things that could have altered the path Enron was on, I am only going to touch on a few of my recommendations. First of all, the corporate culture of Enron was a breeding ground for greed and immoral actions. Employees were rewarded for the money they brought in, no matter how it was made. They were encouraged to use unsavory ways to drive the price of their product up, no matter the cost to the consumer. They exploited their customers time and time again in the name of good business. This all stemmed from the “tone at the top.”2 “Tone at the top is a level of commitment to integrity, to doing the right thing at all costs despite the consequences such action may have on financial performance. Actions...
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...Enron Corporation: THE RISE AND FALL; ACCOUNTING SCANDAL Submitted To: Professor Bill Bristol Submitted By: Kenneth Rhodes, Jr. Metropolitan College of New York (MCNY) TABLE OF CONTENTS I. ABSTRACT...............................................................................................................................2 II. purpose and service....................................................................................................3 III. HistorY............................................................................................................................3-5 IV. The Downfall..............................................................................................................5-6 V. Accounting Scandal................................................................................................6-7 VI. Accounting Practices...........................................................................................7-8 VII. Files’ for Bankruptcy.............................................................................................9 VIII. Auditing.....................................................................................................................9-10 IX. Conclusion: THE AFTERMATH..........................................................................10-11 XI. BIBLIOGRAPHY................................................................................................................12 I. ABSTRACT ...
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...the Case In 1930, Enron began as Northern Natural Gas Company; founded by the North American Light & Power Company (35%), United Light & Railways Company (35%) and the Lone Star Gas Corporation (30%). After a decade, the company was able to double its system capacity and expand its business through acquisitions. In 1985, a merger acquisition with Houston Natural Gas (HNG) took place. The following year, the company’s name was changed to Enron Corporation. Shuffling the management, Kenneth L. Lay (HNG’s chairman), emerged as chairman. In 1991, Enron began overseas expansion. From being a natural gas pipeline company, the company shifted to brokering energy commodities as energy markets were deregulated. Although targets and projections were not met as promised to investors, Enron continued to spend heavily in advertising and lobbying for deregulation. In 1999, Enron ventured into the e-commerce market with the launching of EnronOnline to make the company more attractive to investors. The company stock prices went up but losses were disguised in elaborate partnerships and joint ventures. Such high stock prices fueled suspicion. In 2001, the U.S. Securities and Exchange Commission looked into Enron transactions and its partnerships. Andersen (auditing firm of Enron) destroyed Enron documents that could have been used as evidence. The company’s credibility was still questionable, thus, creditors and investors pulled out. In the latter part of the year, Enron announced its overstatement...
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...Based on the case studies presented online, I recognized that there were several dubious accounting schemes that Enron used. While I found that there are a lot of issues to expound on, the main issue is how fraudulent their company was especially having misrepresented their public financial reports. In our company, we rely on charts, financial sheets to pinpoint which areas are worth developing. Numbers do not lie. When we need money, we make money, we do not add or acquire “assets” because this will incur more expenses. Enron’s capital investments were not thought about at all, bringing them to shortage in their cash flow, not realizing that this was just a short term solution to what didn’t seem to be a long term problem to them. Bankruptcy was brought about greedy traders. I felt like they wanted to monopolize the energy industry, they wanted power so they made everybody else believe that they were indeed making so much money to acquire the other companies. Enron had no real profits. Their management were buying luxurious items off the firm’s money (money that they don’t have). The company was losing money and had been for a long time regardless of its efforts in projecting how rich they were. From the first meeting in class, we discussed that financial accounting involved making decisions—big and small, high, medium and low level kinds of decisions. It is a sad reality that Enron’s top management have failed to make the right ones all throughout their business years....
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...Business Research Paper RES/351 02/13/2013 Business Research Paper In this paper I will be going over the business ethics of a company that is known for one of the biggest frauds in corporate America. The company is Enron and I found an article that is titled " The Case Analysis of the Scandal of Enron" and in this article the author talks about the business practices on Enron and the unethical research they used to grow their business and in the end they ruined a lot of good people's lives, and damaged their futures. According to "Dictionary.com" (2013) ethics are the values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions. Every person has ethics and a code that they live by, but the difference is that not everyone has that same code and especially in the business world that word can be tricky for people and standing up for the code they believe in is hard for some. Unethical business practices is not a new thing, and as the economy has grown these practices have been more common. One unethical practice would be skewing the research results, or the skewing the research from your company. That is one thing that Enron did do, and they even took a step further and did certain practices that no one had ever thought of before. Enron was a natural gas company, and what they did is that they built power plants in a few different places and they took their future...
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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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...A new strategy Enron was the biggest seller of natural gas in North America in 1992, their EBIT was 122 million dollar. Enron used differentiation strategy which aimed to develop and operated with different assets such as pipelines, services, paper plants, water plants and electricity plants. Enron did not just make profit on its assets but also traded with contracts of the assets and service in order to reach higher profit. This is how Enron became a favourite among investors in the ‘90s and its stock price increased 311%. The growth did not stop until the year of 2000. Enron’s market value was above 60 billion dollars and its stock price was 83,13 dollars the 31 December of 2000. The Commodity Futures Modernization Act of 2000 helped them with their derivatives businesses. “One example was during the California electricity crisis (2000-2001) where they manipulated the California energy market and sent electricity prices surging by at least a factor of eight. During that time, the price of natural gas was trading as much as $60 per thousand cubic feet in California (which was previously selling for about $3 per thousand cubic feet). This kind of manipulation increased Enron's stock price and revenues. But this not so clever manipulation of Enron made itself a political target and accelerated the ruins of their finances.” Enron’s downfall Mark-to-market Accounting The use of mark-to-market accounting later struck back. The Enron’s aggressive accounting had corrupted...
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...recent years has evolved drastically and greater accountability and consequences have been issued to corporations. In the United States authorities made many headlines with companies who practiced fraudulent activities, such as Enron, to serve as a warning to those who dare break rules in the future. The Organization Enron, According to (Eichenwald, 2006), was a U.S. energy-trading and utilities company that housed one of the largest accounting frauds in history. The company was based in Houston, Texas. Enron employed about 20,000 people and was the world’s largest natural gas, electricity, communications and pulp and paper company. As reported by Fortune.com, Enron had revenues of nearly $101 billion during year 2000. Fortune also named Enron “America’s Most Innovative Company” for six consecutive years. Accounting Ethical Breach Enron’s downfall, and the imprisonment of several of its leadership group, was one of the most shocking and widely reported ethics violations of all time as stated by (Silverstein, 2013). It not only bankrupted the company but also destroyed Arthur Anderson, one of the largest audit firms in the world. The Securities and Exchange Commission (SEC) announced in 2001 that it was investigating the accounting practices of Enron after several years of questions raised...
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...THE COLLAPSE OF ENRON & THE INTRODUCTION OF THE SARBANES OXLEY ACT BY TREVOR GARRETT 02/25/2011 Abstract Enron Corporation was one of the largest energy trading, natural gas and Utilities Company in the world that was based in Huston, Texas. The downfall of Enron is one of the most infamous and shocking events in the financial world, and its reverberations were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading companies in the U.S and considered among top 10 admired corporations and most desired places to work at. Its revenues made up US $139 to $184 billion, assets equaled $62 to $82 billion, and the number of employees reached more than 30,000 people in 20 countries around the world. While on the surface it seemed like the perfect Corporation, internally it had highly decentralized financial control and decision-making structure, which made it practically impossible to get coherent and clear view on corporations' activities and operations. Enron manipulated its books and assets to help it report steady profit growth to Stock Exchanges and Credit-rating agencies. Investors generally are not willing to pay as much for the stock of a volatile trading operation, and this gave rise to manipulations. This paper briefly describes the legal and ethical breaches by Enron, the key factors and events that led to its collapse and the passing of the Sarbanes Oxley Act as a consequence of such a catastrophe. The paper also discusses the key components...
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...years by many individuals and businesses in the business world in regards to finance. This paper will focus on two of the more well-known ethical issues that occurred in the late 1990s and early 2000s, Enron Corporation and WorldCom. This paper will focus on the factors that led to the demise of the corporations, as well as the violations that occurred within the accounting practices, and the specific ethical violations in strategic financial planning. To summarize, the largest contributing factor to the demise of Enron Corporation and WorldCom was simply corporate governance failure (Stanford GSB Staff, 2016). The smaller factors that led to the governance failure were such things as increases in executive compensation and stock options, jumps to incentives to manage earnings, and major shifts in the structure of auditing firms. These changes directly led to the loss of money and public confidence. These reason can be classified as nothing other than management greed. This can be validated by the statistical increases in worker compensation which rose forty-two percent in the 1990s as well as corporate profits rose eighty-eight percent, the standard and poor index increased two hundred and forty-eight percent, as well as CEO compensation rose four hundred and sixty-three percent during this timeframe (Stanford GSB Staff, 2016). This lead to an increase in corporations, such as Enron Corporation and WorldCom, to have to continually restate earnings to attempt to correct inconsistencies...
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...Shannon O’Neal Business Law 2 Paper #1 Thesis Statement: An analysis of Enron and its monumental collapse shows how this once well-established business had to file bankruptcy; fraud, tampering with financial records, deceiving employees and stockholders, embezzlement, and upper management practicing unethical business practices all proved to be key components in Enron’s downfall. Enron was a company that despite its long-term success fell apart in the end due to lack of internal controls and misguided executives and management. Corruption, scandal, theft, and inefficiency all led to the bankruptcy of a once well-established business that today, still has a tarnished reputation that will never recover. Had upper management been ethically balanced, this White Collar crime could have been avoided along with billions of dollars lost, thousands of jobs lost, and people’s trust in the financial industry destroyed. White Collar Crime is defined as non-violent, financially-based criminal activity typically undertaken within a setting in which its participants retain advanced education with regard to employment that is considered to be prestigious (Laws.Com). Enron and its top leaders not only misrepresented earnings reports, but embezzled funds from its investors making this company’s scandal the most notorious business failure in history. Enron’s fraudulent business practices affected thousands of people, and the laws that were broken, along with the crimes that were attempted...
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...purpose entities) displays some manipulation from the part of the audit firm that also with prior knowledge of accounting ethics, which at most times makes it more risky, given the legal involvement. Lastly, manipulations are also likely to occur as the biggest threat in the audit consultancy services. So, professional ethics are likely to arise. Hence, self-governance is largely a matter that can pose greater risk. When it matters to preparation and retention of audit work paper, the requirement prepare by auditor should be in a manner that it helps the auditors to carry out auditing services in the most appropriate way. Hence the working paper requirement at most should avoid accumulating unnecessary working papers for the sake of client and for the requirement of professional auditing standards. When it comes to the ownership of audit work paper and as with the general principles, audit paper is the property of the auditor concerned in all circumstances. However, the auditor and the audit paper are also subject to some compliance. Hence, in the first instance audit firm own audit...
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...Research Proposal The Quality of financial Reporting after the passage of Sarbanes-Oxley Act Dr. Hassan Ahmed Assistant Professor at Cameron University Abstract The complexity of business environment necessitates a set of required disclosures in a timely fashion. The full disclosure principle under U.S. GAAP is based on a vague definition that cannot be clearly implemented. The cost of disclosures can be significantly large and can have a negative impact on companies’ future earnings (small businesses). The purpose of this article is to examine the disclosure establishment of pre and post Enron, the effect of those disclosures on both corporations and on potential investors and to examine whether financial reporting quality improved with the passage of SOX. A total of 360 audited annual financial statements of the 500 fortune companies were selected. The paper will specifically concentrate disclosures on financial statements, Notes, supplementary (required or voluntary), and other expanded disclosures required by the SEC. The findings will shed light on our understanding about the intended and unintended consequence of SOX. 1.0 Introduction/Literature Review The purpose of SOX Act is to increase corporate transparency and accountability (Friedman, The Business Forum). Though SOX did not address the full disclosure required by the FASB, it simply expanded disclosures by establishing responsibilities. The company’s Chief Executive Officer (CEO) and Chief Financial...
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