ethics enron scandal

7/28/2019 Ethics Enron Scandal

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ENRON: The Ethical Scandal


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ENRON: A BRIEF

BACKGROUND Enron was a Houston-based natural gas pipeline

company formed by merger in 1985.

By early 2001, Enron had morphed into the7thlargest U.S. company, and the largestU.S.buyer/seller of natural gas and electricity.

Enron was heavily involved in energy brokering,

electronic energy trading, global commodity andoptions trading, etc.


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DOWNFALL On October 16, 2001, in the first majorpubl ics ign of troub le, Enron announces ahuge third-quarter loss of $618 million.

On October 22, 2001, the Securities andExchange Commission (SEC) begins and inquiryinto Enrons accounting practices.

On December 2, 2001, Enron files forbankruptcy.


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The Rise and Fall of Enron

Movement of Enrons share price (USD)


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Ethical Issues:

Misrepresentation of

AccountsInsider Trading

Government ProbingMedia Hype


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Fudging of Accounts Tweaking the numbers in financial statements

Hiding losses in off-balance-sheet subsidiaries

Fraudulently misrepresenting Enrons financial

condition in public reports Engineering off-balance-sheet schemes to funnel

money to themselves, friends, and family


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Role of Top Management

CFO Andrew Fastow

CEO Jeff Skilling

CEO Kenneth Lay


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Arthur Anderson (AA) Co David Duncan

Enron's chief auditor at Anderson

His job was to check Enrons accounts

He is accused of ordering the shredding ofthousands of Enron-related documents inan effort to hide them from Securities andExchange Commission investigators


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Government Lobbying

Spent $3.45 million in lobbying expenses in 1999and 2000 for deregulation of the energy business

Principles oftransparency, accountability andcitizen oversight all removed underderegulation.

California Crisis.

Influencing Government policies at federal,state and national levels.


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Media Hype

"model for the new American workplace" - NewYork Times

"America's Most Innovative Company" for six

years running- Enron website 22nd in its Companies to "Work for in America -

Forbes

Without the media hype machine, it would be

hard to imagine the bubble getting so large.


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Company Report

Auditors

Share Holders

Enron Board of directorsAudit Committee(Directors)

Role of various entities on a Companys Report


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Impact on The Stake holders

ENRON

Employees

Shareholders

Govern

mentSociety

Bankers

andCreditors


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Aftermath Events

SOX Act in 2002

Megaclaims Litigation in 2004Enron Creditors RecoveryCorporation

Legal proceedings against theheads


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Conclusion Reforms in Accounting regulations by SEC Reforms in Corporate Governance

Closer scrutiny of analysts' recommendations

Prohibition of ownership of both auditing andconsulting services by the same accounting firm

Influence of private companies in GovernmentPolicy Making

Change in executive compensation system

ethics enron scandal

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