Enron

In: Business and Management

Submitted By cstars212
Words 304
Pages 2
Energy company Enron was broken up after revelations of Andersen's performance as an auditor. The Powers Committee (appointed by Enron's board to look into the firm's accounting in October 2001) came to the following assessment: "The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron’s financial statements, or its obligation to bring to the attention of Enron’s Board (or the Audit and Compliance Committee) concerns about Enron’s internal contracts over the related-party transactions".[4]
On June 15, 2002, Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron, resulting in the Enron scandal. Nancy Temple (Andersen Legal Dept.) and David Duncan (Lead Partner for the Enron account) were cited as the responsible managers in this scandal as they had given the order to shred relevant documents. Since the U.S. Securities and Exchange Commission does not allow convicted felons to audit public companies, the firm agreed to surrender its CPA licenses and its right to practice before the SEC on August 31, 2002 - effectively putting the firm out of business. It had already started winding down its American operations after the indictment, and many of its accountants joined other firms. The firm sold most of its American operations to KPMG, Deloitte & Touche, Ernst & Young and Grant Thornton LLP. The damage to Andersen's reputation also destroyed the viability of the firm's international practices. Most of them were taken over by the local firms of the other major international accounting firms.
The Andersen indictment also put a spotlight on its faulty audits of other companies, most notably Waste Management, Sunbeam, the Baptist Foundation of Arizona and WorldCom. The subsequent bankruptcy of WorldCom, which quickly surpassed Enron as the…...

Similar Documents

Enron

...------------------------------------------------- Advanced Strategic Management Enron By Anna Medvedeva The movie Enron which was based on the Enron Corporation in Houston, Texas is mainly about the company which followed institutionalized, systematic and creative planned accounting fraud for almost a decade. This resulted in Bankruptcy of the corporation in 2001 which was also is considered to be one of the biggest scandals in the US Market. The movie depicted was a little exaggerating when it comes to the economic dealings of the company in the market with its shares. The exploitation of Jeff skilling and Andrew Fastow who were well versed with burgeoning deregulated energy market, according to me are considered to be one of the important aspects of the fraud (as shown in the movie). Enron is now also considered to be the most willful corporate fraud in modern history. The few important points according to me that can be considered to be the reason of the company’s bankruptcy could have be avoided in order to save the company’s reputation, brand and value are: * The common business practices such as the limited liability special purpose entities which were established in number by Andrew Fastrow without the liability of these entities being shown in the annual accounting booklet could have been stopped. * As a foreign exchange program Enron involved in finding Energy Investors in India in 1992 due to the energy shortage problems. Enron enlisted a 20 year......

Words: 607 - Pages: 3

Enron

...Enron Corporation Describe how Enron could have been structured differently to avoid such activities. Enron had a code of ethics policy in place but failed to implement it correctly (Bagley, C.E. & Savage, D.W., 2010). An enforced code of ethics policy, which includes required annual ethics training, is crucial in setting standards for employees in regards to their ethical behavior. It reminds all employees that they need to think about how they conduct themselves on the job. Here at NASA, we have a code of ethics policy and annual ethics training. NASA’s ethics training is a required course that all employees must take. Training informs all NASA employees of what is and is not acceptable behavior. Along with the enforcement of a code of ethics policy and training, Enron needed to be structured so that people could safely come forth if they witnessed any illegal or unethical actions. Of course, the Sarbanes-Oxley Act, which makes it easier for employees to come forth, did not pass until after the Enron scandal. Another way that Enron could have been structured differently was to have a better way to scrutinize the activities that went on at Enron. That is, structure the company so that daily activities could be closely monitored. A separate group could have been created to do some internal monitoring of the activities at Enron. The things I mentioned would have been helpful in developing a better culture at Enron and could have helped limit such activities. ......

Words: 1238 - Pages: 5

Enron

...Enron Corporation was a company that provided services which related to energys, commodities and services based in Houston Texas. Enron employed approximately 22,000 staff. It was one of the world's leading electricity, natural gas, communications, pulp, and paper companies. Enron claimed revenues of nearly $101 billion in 2000 before it filed bankruptcy in late 2001. Enron was named "America's Most Innovative Company" for six years in a row by Fortune. In 2001, Enron was accused of accounting fraud which later was recognized as the "Enron Scandal" and forced to file bankruptcy. The scandal led attention to other corporation's practices and activities from this result. The creation of the Sarbanes-Oaxely Act of 2002 was influenced by the Enron scandal as well. Enron's roots go back to a company that was formed in 1932 known as the "Northern Natural Gas Company". The company was reorganized in 1979 as leading subsidiary of a holding company known as InterNorth Inc. The company was a leader in natural gas, transmissions, and marketing. It was also a provider of natural gas liquids as well as an innovator in the plastic industry. InterNorth owned "Peak Antifreeze" as well as developing "EVAL" resins for food packaging. The Enron Corporation led itself into scandel, fraud, lies, and illegal financial cover-ups that would later be known as one of the biggest corporation scandels in history. 1. Discuss how Enron could have been structured differently to avoid such......

Words: 650 - Pages: 3

Enron

...Enron: What Caused the Ethical Collapse? Introduction Kenneth Lay, former chairman and chief executive officer (CEO) of Enron Corp., is quoted in Michael Novak’s book Business as a Calling: Work and the Examined Life as saying, “I was fully exposed to not only legal behavior but moral and ethical behavior and what that means from the standpoint of leading organizations and people.” In an introductory statement to the revised Enron Code of Ethics issued in July 2000, Lay wrote: “As officers and employees of Enron Corp., its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner.” Lay went on to indicate that the 64-page Enron Code of Ethics reflected policies approved by the company’s board of directors and that the company, which enjoyed a reputation for being fair and honest, was highly respected. Enron’s ethics code also specified that “An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company.” Enron’s ethics code was based on respect, integrity, communication, and excellence. These values were described as follows: Respect. We treat others as we would like to be treated ourselves. We do not......

Words: 1852 - Pages: 8

Enron

...7. A perceived lack of integrity caused irreparable damage to both Andersen and Enron. How can you apply the principles learned in this case personally? Generate an example of how involvement in unethical or illegal activities, or even the appearance of such involvement, might adversely affect your career. What are the possible consequences when others question your integrity? What can you do to preserve your reputation throughout your career? A perceived, or even likely more detrimental to one’s career, a proven lack of integrity, can cause damage to a career in many ways. Integrity is an important foundation in client and employee/employer relationships. Integrity equates to placing trust in an individual that he or she will conduct themselves with ethical and moral standards. Studying the damage caused to Andersen and Enron is a good example to conduct oneself with a high standard and not engage in activities at our outside of work which would cause someone to question your integrity as well as the trust relationship. An example of involvement in unethical or illegal activities, or the appearance of involvement which may adversely affect your career, would be participation in gambling. While this activity is legal in some states and venues, this activity could be extrapolated to one’s personality which could go against the moral of integrity of clients or supervisors. Since this is a perceived negative activity, a client or employer might wonder what risks of......

Words: 1069 - Pages: 5

Enron

...Enron: What Caused the Ethical Collapse? Introduction  Kenneth Lay, former chairman and chief executive officer (CEO) of Enron Corp., is quoted in Michael Novak’s book Business as a Calling: Work and the Examined Life as saying, “I was fully exposed to not only legal behavior but moral and ethical behavior and what that means from the standpoint of leading organizations and people.” In an introductory statement to the revised Enron Code of Ethics issued in July 2000, Lay wrote: “As officers and employees of Enron Corp., its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner.” Lay went on to indicate that the 64-page Enron Code of Ethics reflected policies approved by the company’s board of directors and that the company, which enjoyed a reputation for being fair and honest, was highly respected. Enron’s ethics code also specified that “An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company.” Enron’s ethics code was based on respect, integrity, communication, and excellence. These values were described as follows: Respect. We treat others as we would like to be treated ourselves.......

Words: 2109 - Pages: 9

Enron

...In the repercussion of Enron‘s bankruptcy filing, numerous Enron executives were charged with criminal acts. Those charges were fraud, insider trading and money laundering. Enron was described as―House Of Cards‖ as it was built over a pool of gasoline. It all sort of became smoke and mirror. Louis Borget, former Enron's CEO was also exposed to be rerouting company’s money to offshore accounts. Once their schemes were discovered by the auditors, Kenneth Lay encourages them to "keep making us millions". However, the traders were fired once it was revealed that Enron's reserves were gambled awaywhich nearly destroyed the company. After these facts were brought to light, Ken Lay denies having any knowledge of wrongdoing. Needless to say, when required to testify before the U.S. Congress on the reasons for Enron‘s collapse, Ken Lay, Jeff Skilling and Andrew Fastow, sought refuge under the Fifth Amendment. Andrew Fastow, Jeffrey Skilling, and Kenneth Lay are among the most notable top-level executives implicated in the collapse of Enron‘s. Kenneth Lay, the former chairman of Enron was prosecuted on 11 criminal counts of making misleading statements and fraud. Jeff Skilling, former Chief Executive Officer (CEO) of Enron was charged on 35 counts that included conspiracy wire fraud, insider trading, securities fraud, and making false statements on financial reports. Andrew Fastow, former Enron’s Chief Financial Officer (CFO), faced 98 counts of money laundering, fraud, and conspiracy......

Words: 833 - Pages: 4

Enron

...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......

Words: 1713 - Pages: 7

Enron

...1. Explain the concept and rationale behind mark to market accounting and it's significance to Enron. Kenneth Lay, the president of Enron hires a new CEO who is very energetic and a “dreamer” and joins Enron with one condition. That they utilized mark-to-market accounting, allowing the company to book potential profits on certain projects right after the deal are signed. Enron began a venture that could make $50 million in 10 years; it could claim the $50 million as current income. This gives Enron the ability to appear as a profitable company even if it isn’t. 2. Describe the Enron culture. Enron’s culture seems to be very competitive and all the employees had the same attitudes of their bosses. 3. What is Andy Fastow's significance to Enron? Andy Fastow’s was the Enron’s CFO. He helped the company by hiding the losses with a “Tom Ponzi’s scheme”. 4. What is Sherron Watkins significance to Enron? She was the Vice President at Enron. She is considered by many to be the whistleblower that helped to uncover the Enron scandal. She wrote a concerned internal email message to Enron CEO Kenneth Lay warning him that the in the financial reports didn’t make sense. 5. Why did Wall Street wait until the collapse of Enron to investigate the company? Was there a diffusion of responsibility whereby the executives at Enron told thmeselves that their behavior was okay because the bankers and the lawyers knew what they were doing? 6. In the Stanley Milgram experiment,......

Words: 298 - Pages: 2

Enron

...Shkëlqimi dhe rëlqimi dhe rënia e Enron Origjina e Enron daton në vitin 1985, kur ajo filloi jetën si një kompani ndërshtetërore tubacionesh nëpërmjet bashkimit të Houston Natural Gas dhe Omaha-based InterNorth. Kenneth Lay, ish shefi ekzekutiv officerof i Houston Natural Gas, u bë CEO, dhe vitin e ardhshëm fitoi postin e kryetarit të bordit(chairman). Nga sektori i tubacionit, Enron filloi të lëvizë në fusha të reja. Në vitin 1999, kompania filloi të ofrojë shërbimet broadband dhe Enron Online, faqen e internetit të kompanisë për shkëmbime tregëtare, i cili së shpejti u bë site më i madh i biznesit në botë. Rreth 90 për qind e të ardhurave të saj, erdhën nga shkëmbimet tregëtare të Enron Online. Rritja për Enron ishte e shpejtë. Në 2000 të ardhurat vjetore të kompanisë arritën në 100 miliard $ US. U rankua, si kompania e shtatë më e madh në Fortune 500 dhe kompaninë e gjashtë më e madhe e energjisë në botë. Çmimi i aksionit i kompanisë arriti kulmin në $ 90 amerikane. Megjithatë, krisjet e para filluan të shfaqen në vitin 2001. Në gusht të atij viti, Jeffrey Skilling, një forcë zhvilluese në riorganizimin e Enron dhe CEO i kompanisë prej gjashtë muajsh, njoftoi largimin e tij, dhe Lay rifilloi postin si CEO. Në tetor të vitit 2001, Enron raportoi një humbje prej $ 618 milione, humbjes së saj të parë tremujore në katër vjet. Drejtori financiar Andrew Fastow u zëvendësua, dhe US Securities and Exchange commision SHBA nisi një hetim për partneritete të......

Words: 696 - Pages: 3

Enron

...Professor Young March 5, 2011 Enron was an old line energy company, owning electric power production facilities and natural gas pipelines. It engaged in several acquisitions during the late 1980s and the 1990s that dramatically increased its size. Its acquisitions included power companies in the U.S. and abroad, as well as investments in various energy and technology companies. In the 1990s, Enron reorganized itself as an energy trading company, whose primary form of business was to trade in various energy vehicles, including contracts to provide electric power in the future at pre-determined prices and similar contracts to deliver natural gas, water rights, wind power systems, broad band transmission systems, insurance, and other products. 1. Describe how Enron could have been structured differently to avoid such action. Enron, like most public companies was required by law to describe its party transaction to shareholders and the members of the investing public in several different disclosure documents. Overall, Enron failed to disclose facts that were important for understanding the substance of the transaction. Although they did disclose that there were large transactions that the CFA had interest. Enron did not give the CFO’s actual or expected benefits from these transactions or provide complete financial statements. The organizational structure could have been different by not changing the original structure. When Enron decided to change its......

Words: 1126 - Pages: 5

Enron

...anything about Enron? What factors perpetuated the Enron myth? Why were the warnings ignored? Wall Street analyst did not want to believe that Enron was doing anything illegal, because of the amount of money they knew they could make. In the film, analysts blamed Enron for giving them false information. The false information kept Enron looking profitable, so it was recommended to investors. Also analysts were tricked or “bought” into overlooking the great hole Enron and anyone else participating in the corruption was digging. Enron was portrayed as an innovative company and was featured on covers of magazines a few times. They were put on a pedestal that was so high that no one could see that the company was failing and committing fraud. Enron used a different accounting method that allowed them to report potential profits, not actual profits. A company will always look good if it is reporting potential profits, because the potentials are limitless. No one wanted to neither admit nor believe that there was something seriously wrong at Enron. Greed was such a big player and no one wanted to lose money. There were many big players involved in the corruption, so they would do whatever it took to hide the truth. At the end, companies just pointed the finger at Enron and claimed innocence. 2. Describe the Enron corporate culture. Explain how the following reinforced the Enron corporate culture and the notion of “survival of the fittest?” The corporate culture in Enron......

Words: 863 - Pages: 4

Enron

...     . Burton Final Paper: The Enron Scandal MSA 602 Dr. Pendarvis 12-4-2011 Abstract Enron's collapse is generally viewed as a morality tale - the natural result of managerial greed, a clueless board, and feckless gatekeepers. But none of these aspects of the story clearly distinguishes Enron from other major firms during the bubble era of the late 90s. This material identifies certain economic facts from the many moving parts that was Enron, and organizes them along two main threads. The first describes Enron's major businesses, and the incentives and constraints under which the managers of those businesses operated. The second thread describes the basic financial engineering tools developed by Enron's finance department. These threads are then woven into the timeline of Enron's ultimate collapse. What emerges is a tale of how bad bets that resulted in good outcomes came to be viewed by top management and the board as bets worth repeating on an ever-larger scale. Early success in highly risky ventures were ramped up and duplicated, under perverse incentives, into a financial disaster. The firm then doubled down on that disaster with non-economic hedges developed by the finance group. The CFO, in a wholesale breach of his fiduciary responsibilities, including corruption of various gatekeepers, managed to cloak the poor quality of his hedges and his motivation in creating them. This......

Words: 3025 - Pages: 13

Enron

...Running Head: ENRON CORPORATION Enron Corporation July 20, 2011 Based in Houston, Texas, Enron Corporation was an American energy, commodities and service company. Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Enron employed approximately 22,000 employees and was one of the world’s leading electricity, natural gas communications, and pulp and paper companies before its demise in late 2001. For six consecutive years, Fortune named Enron "America's Most Innovative Company". At the end of 2001, it was discovered that Enron’s financial accounting reports had been falsified and the company had filed for bankruptcy. This substantial act was known as the "Enron scandal". The Enron scandal also lead to the creation of the Sarbanes-Oxley Act of 2002, a United States federal law enacted on July 30, 2002 to enforce firmer standards for management and accounting firms. Enron has since become a popular symbol of willful corporate fraud and corruption. Describe how Enron could have been structured differently to avoid such activities. Enron withheld essential financial and accounting information from the public and its shareholders. By law Enron was required to disclose their company financial dealings. Enron’s shareholders should have been informed about their financial and accounting transaction. Several shareholders were employees who had invested their life savings into this company. Instead of promoting within the...

Words: 1010 - Pages: 5

Enron

...Enron and Arthur Andersen Accounting Scandal The Enron accounting scandal resulted in a loss of reputation to Arthur Andersen which was a result of fraudulent financial statement reporting. Crimes discovered included irregular accounting procedures which could be turned in as fraud which involved Enron and Arthur Andersen as its accounting firm. They were found to have committed wire fraud, security fraud, making false statements to banks, creating several “independent” companies, called “Special-Purpose Entities” (SPEs) and using them as a way to hide many bad and devalued assets to fool investors into believing Enron was financially healthy so Enron executives could pocket millions from sales of inflated stock. They created a company called LJM1 which purchased the provider’s stock at inflated prices and took them off the books at Enron. Later, when the price of the stock fell, Enron did not have the loss on its books. LJM allowed Enron to move money-losing assets off its balance sheet. LJM was also involved in complex hedging that was supposed to reduce the volatility of some of Enron's investments, including stakes in high-tech and telecom businesses. Arthur Andersen, Enron’s accountants, were accused to have allowed LJM1 to be isolated from Enron’s books, and go unnoticed. In the end, LJM1 was stuck with stock from the internet provider, which they purchased from Enron at inflated prices, and now were worth much less. Andy Fastow was the Enron executive......

Words: 1242 - Pages: 5