Essay on Analysis of the Enron/Arthur Anderson Scandal

Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as â€Å"creative† accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger†¦show more content†¦As competition increased and the economy started to plunge in the early 2000s, Enron struggled to maintain their profit margins. Executives determined that in order to keep their debt ratio low, they would need to transfer debt from their balance sheet. â€Å"Reducing hard assets while earning increasing paper profits served to increase Enron’s return on assets (ROA) and reduce its debt-to-total-assets ratio, making the company more attractive to credit rating agencies and investors† (Thomas, 2002). Executives developed Structured Financing and Special Purpose Entities (SPE), which they used to transfer the majority of Enron’s debt to the SPEs. Enron also failed to appropriately disclose information regarding the related party transactions in the notes to the financial statements.Andersen performed audit work for Enron and rendered an unqualified opinion of their financial statements while this activity occurred. The seriousness and amount of misstatement has led some to believe that Andersen must have known what was going on inside Enron, but decided to overlook it. Assets and equities were overstated by over $1.2 billion, which can clearly be considered a material am ount (Cunningham Harris, 2006). These are a few of several practices that spiraled out of control in an effort to meet forecasted quarterly earnings. As competition grew against the energy giant and theirShow MoreRelatedAuditor Choice and Institutional Investor Choice after the Enron Scandal. 618 Words   |  3 PagesThe institutional investor, who has owned significant amount of investment concern with monitoring duties of management, as they gain benefit from it. They require high quality of information and have a power to carry out financial analysis. Their monitoring role become important since there is increase in agency conflict between managers and shareholders. The institutional investor tend to pressure manager in order to protect shareholder interest. Since the institutional investor need to controlRead MoreThe Collapse Of Enron And Enron1365 Words   |  6 PagesTwo organizations that will live on in infamy in the business world are World Com and Enron. These names are synonymous with the largest corporate scandals in US history. Their failure to live by ethical and moral codes resulted in bankruptcy, large financial losses to employees and shareholders as well criminal penalties. Additionally, these deviations from ethical behavior from several related parties shined a light on the accounting profession and resulted in several changes in the industryRead MoreEthics And The Auditing Culture : Rethinking The Foundation Of Accounting And Auditing974 Words   |  4 Pagesfinancial scandals of Enron, WorldCom, and Arthur Anderson (p. 271). The authors emphasize the role of the AICPA Code of Conduct and ethical perspectives for accountants and auditors. Introduction. The authors study profiles of firms that included the accounting fraud. The main objective of the research is to improve the ethical conduct for accountants through the demonstration of the gap between constituted rules and its implementation in practice using the Enron and Arthur Anderson example. TheRead MoreManagement Organization1074 Words   |  5 Pagespotential. This paper will discuss Enron, and the business failure that occurred. At one time, Enron was one of the largest energy providers in America, based out of Houston, Texas. This paper will explain how specific organizational behavior theories could have predicted Enron’s failure. Also provide a comparison and contrast how leadership management and organizational structures contributed to the failure. Enron History Enron was founded in 1985 by Kenneth Lay. Enron was formed by Mr. Lay† mergingRead MoreEnron And The Enron Scandal1588 Words   |  7 PagesEnron was a corporation located in Houston, Texas and in just fifteen years the US energy trading and utilities company grew to become one of America’s largest and more successful cooperation’s. Enron suffered a major fall. After being one of the most successful corporations Enron became the biggest company to file bankruptcy in history. In this research paper it will discuss about the history of Enron, the fraud committed and who is to blame. The historical development of white collar crime in theRead MoreEnron: Corporate Culture3743 Words   |  15 PagesENRON Corporate Culture Q1: Analyse the corporate culture at Enron and its management’s behaviour. Include in your analysis, the normative theory of ethics which you would consider most relevant in driving the decision making at Enron. Enron began by merger of two Houston pipeline companies in 1985, although as a new company Enron faced a lot of financial difficulties in the starting years, though the company was able to survive these financial problems (Enron Ethics, 2010). In 1988 the deregulationRead MoreStandard Issues: Aicpa993 Words   |  4 Pagesprofessional code of conduct is designed to protect the individual and users of the company’s financial information. The accounting scandals of Enron, WorldCom and Sunbeam during the early 2000s highlighted some significant deficiencies regarding individual accounting ethics. In order to combat the negative perceptions of the accounting industry arising from these scandals, the AICPA began focusing more attention on developing the ethical standards of individual accountants. The professional code ofRead MoreEnron Scandal1477 Words   |  6 Pagesï » ¿Current issue: Scandals in auditing Enron Scandal 1. Introduction Accounting scandals are political or business scandals which arise with the disclosure of financial misdeeds by trusted executives of corporations or governments. These days, not too often, these scandals are splashed as headlines across media. Why? Because there are complex groups of stakeholders who might be seriously affected by the scandals. Enron scam was the most remarkable scandal in 20 centuries by their institutionalizedRead MorePower Failure : The Inside Story Of The Collapse Of Enron980 Words   |  4 PagesGeneral: Power Failure: The Inside Story of the Collapse of Enron, Mimi Swartz and Sherron Watkins, 432 pages, March 25, 2003, Crown Publishing Group, ISBN: 978-0-767-91368-3 Authors: The book is written by two authors: Mimi Swartz and Sherron Watkins. Mimi Swartz is a journalist who graduated from Hampshire College. She has written for many publications. Her work has been included in Slate, Vanity Fair, National Geographic, The New Yorker, and the New York Times. Currently, she serves asRead MoreEnron And The Collapse Of Enron1303 Words   |  6 PagesEnron, a company which originated in Huston, Texas, was one of the largest American energy trading corporations in the nation. Although it was one of the most well known companies, it was also one that crashed and burned the fastest, shocking many people when it did. Not only did it end fast, the company caused quite a scandal which is still being discussed and reviewed in today’s world. Enron’s bankruptcy scandal was so widely known because of the many people who associated themselves with the company