Scandal

In: Business and Management

Submitted By avecamourstacy
Words 2037
Pages 9
Case Study: Enron Corporation and Andersen LLP
Enron was one of the biggest companies, in the industry of electricity, natural gas, and paper manufacturing. The Company's revenues in 2000 were 111 billion, which made Fortune magazine Comrade crowned her the most innovative in the United States for six consecutive years. At the end of 2001, the company declared bankruptcy with approximately -65.5 billion dollar in debt and the company’s share price fell within a few weeks from a high of nearly ninety dollars to only few cents. As of 2013, it ranks sixth largest bankruptcy of all time.
Many decisions and risks that Enron took led them to their collapse. Enron faced risks as of any other energy company such as instability of prices, and as they grew to be a global company they faced foreign currency risks, and different regulations, policies and political risks unique to each country. The complex nature of Enron made the company face greater risks, and that pressure led them to adopt aggressive financial reporting practice, this model increased the likelihood of material misstatements. It enabled the management to overstate its revenue while not disclosing the actual value of its debt. The risk of fraud by management was high. The transactions involving SPE's essentially involved Enron receiving borrowed funds that were shown as revenue without recording liabilities. Also, the amount of misstatements was huge as Enron had hundreds of such SPE's. Complex financial derivative transactions were used to hide enormous amounts of debt. Huge increases in borrowing were made to look like hedges for commodity trades rather than new debt financing. The network of SPE's along with complicated speculations and hedges kept an enormous amount of debt off the balance sheet. The accounting standards were inadequate in providing for the proper accounting of these transactions. The…...

Similar Documents

The Enron Scandal

...The Enron Scandal Background Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000.[1] Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the Enron scandal. Financial Frauds Enron’s downfall is basically the accumulated effect of its unethical practices in financing and reporting. Enron's non-transparent financial statements did not clearly depict its operations and finances with shareholders and analysts. In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to portray a favorable depiction of its performance. Enron's accounting and financial transactions is designed to keep reported income and reported cash flow up, asset values inflated, and liabilities off the books. The combination of these issues later led to the bankruptcy of the company: Aggressive Revenue Recognition As an energy supplier, Enron can be considered as merchants or agents. As......

Words: 869 - Pages: 4

Bribery Scandal

...two to tango". In the Siemens case, the bribery was in all of their doings. I believe that it wasn't necessary to use bribe to win over the contracts. What companies need to do to win over contracts is to actually sell their products, believing that it's going to benefit the country and show the countries how. Maybe instead for giving millions of dollars in bribe money actually give them a big discount. 2. The board had their reasons to not extend Kleinfeld's term, despite his good performance and was not being directly implicated in the bribery scandal. From the beginning he was not received well by the conservative old generation because of his American style of work. So I believe that the board was not right in not extending Kleinfeld's term, because their reasons to do so had nothing to do with the bribery scandal, but personal. The main challenge for the new CEO was to bring the company out the bribery scandals and sustain the growth set by Kleinfeld and above all gain the confidence of labor and management within Siemens. Siemens was really at fault in this bribery case. On account of increasing competition companies were resorting to illegal payments to win international contracts especially in some emerging economies...

Words: 354 - Pages: 2

Enron Scandal

...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......

Words: 882 - Pages: 4

Accounting Scandals

...like Madoff’s case, he trusted his sons but they even let their father get caught. If it is me, I won’t even know what to do in the first place but it is good to know that the sons did what is right. The results of the scandals are different. Some had their corresponding penalties and some are freed after the hearing or investigation. I hope that everyone involved was only given enough years in their sentence and was given a chance to live outside the jail. But maybe there are some reasons why some still live normally outside the prison after all and some like Madoff who was sentenced for 150 years of imprisonment. I really hope that accountants and future ones will d their jobs as what the program taught while studying. Being honest and responsible for the things they’re handling. Also, as a student under this program, if I will not be a good accountant in the future, I hope I can be kicked out of this. I will never like to be guilty of whatever that will make me and my family live in shame. My dream is to lift my family to a better living but never push down people who also have the dreams like mine. Actually, in the beginning of this reflection, I really have nothing to say sentence after sentence but as I go on, it really made me think of the scandals I’ve read. Their company is really on top and why they’d still take the risk of turning down what they’d work for so many years. Pathetic....

Words: 397 - Pages: 2

Enron Scandal

...The Enron Scandal and Moral Hazard Prof. Leigh Tesfatsion Department of Economics Iowa State University Ames, IA 50011-1070 http://www.econ.iastate.edu/tesfatsi/ Last Revised: 3 April 2011 The Enron Scandal and Moral Hazard • Enron, the 7th largest U.S. company in 2001, filed for bankruptcy in December 2001. • Enron investors and retirees were left with worthless stock. • Enron was charged with securities fraud (fraudulent manipulation of publicly reported financial results, lying to SEC,…) • QUESTION: In what ways are security market moral hazard problems at the heart of the Enron bankruptcy scandal? Brief Time-Line of the Enron Scandal • Enron was a Houston-based natural gas pipeline company formed by merger in 1985. • By early 2001, Enron had morphed into the 7th largest U.S. company, and the largest U.S. buyer/seller of natural gas and electricity. • Enron was heavily involved in energy brokering, electronic energy trading, global commodity and options trading, etc. Brief Time-Line of the Enron Scandal…Continued • On October 16, 2001, in the first major public sign of trouble, Enron announces a huge third-quarter loss of $618 million. • On October 22, 2001, the Securities and Exchange Commission (SEC) begins an inquiry into Enron’s accounting practices. • On December 2, 2001, Enron files for bankruptcy. : Oct – Dec 2001 Regulatory Oversight of Enron Auditors Arthur Anderson Audit Committee (Directors) SEC Company Report Shareholders Enron...

Words: 1722 - Pages: 7

Enron Scandal

...Enron Corporation was established in 1985 by Ken Lay after merging Houston Natural Gas and Internorth, it has more than 20,000 employees and it's one of the seven largest electricity, natural gas company. Before it went to bankruptcy, Enron claimed revenues of almost $101 billion in 2000, placed Enron at sixth on the Fortune Global 500, it also named "America's most innovative company" for the past six years(1996-2001). In 10/22/2001, The "street.com website pronounced a message revealed the complex financial transaction between Enron and Osprey Co., through Osprey, Enron debited 340 billion dollars"○1 which never appeared in the financial statement. At the same time, SEC began to investigate Enron, thus, the Enron's accounting scandal finally above the water. The first person who became the whistleblower disclosure Enron's financial fraud was Watkins and Cooper, although the CFO asked cooper to postpone her investigation, Cooper still doing her audit to alert the board about the financial statement problems, at the meantime, Watkins outlined the problems in a memo to Ken Lay, "but by the time Watkins and Cooper blew the whistle, much damage had already been done and the shareholders and employees were the ultimate losers."○2 Whistleblower program is very important to minimum a corporation's hazardous activities, but the blower often face some awkward situations, such as fear of the manager's retaliation, fear to be treat as a betrayer by the workmates, unwilling to......

Words: 982 - Pages: 4

Enron Scandal

...Enron as an ethical dilemma can only be described as a travesty. The violations of ethical code and moral obligation ceased to exist while the company was alive. A tremendous contributor to the scandal is Arthur Anderson, who was Enron’s outside auditor since 1985. Arthur Anderson was able to hide major losses from Enron. Many projects that had failed through Enron seemingly went unnoticed as they were covered up by Anderson. Not only was this illegal, but it was ethically wrong of Anderson and Enron to do. Most of what Enron did violated business legality. The decision to break these laws is surrounded by the unethical approach the company took in order to maintain company power. The categorical imperative of the energy giant is that in order to maintain power, we as a company must hide our losses. This is one of Immanuel Kant’s theories that focuses on imperatives and what human beings deem as necessity, and what actions must occur in order to reach ones goal. So in this case it is clear what Enron deemed as necessity. Next, I will talk about the utilitarian theory and how it relates to the ethical dilemma at Enron. Utilitarian is the theory in which we as people attempt to minimize the harm in our decision making process while also maximizing the good. In the case of Enron, executives, on the surface, may have acted in a utilitarian manner, but ultimately created more harm than good. The deeper levels of unethical behavior and illegal activity would show that Enron was...

Words: 660 - Pages: 3

Enron Scandal

...Busicom2 – 05/02/10 Executive Summary In 2001 fell Enron after one of the biggest scandals in the modern economy. Creative accounting, oppressive management and deceptive communication are in the heart of that affair. The first ruse was a cheating accounting. The company used the mark to market system, but in an illegal way for they calculated the assumed profits for the next 20 years, ie long term assumed profits. Moreover, they did not declare all the expenses (only a third for the trade with the station in the North Sea) and manipulated subsidiaries, which are told independent when they belong at least 3% of their capital, to hide debts and boost earnings. Besides, the management in Enron used the staff performance review which conducts the staff to work hard in order to be in the group of the ‘winners’. There were actually rewards for good employees, pension and savings, so that they would be interested in the good form of the firm and would not complain against the scam. Enron also managed to corrupt some politicians, bankers, analysts by pressurizing them or by giving great advantages and funds. For instance, the Energy Regulation Board earned one million dollars. Their marketing strategy was a diversification of the production of the corruption of analysts who would promote those new products. When the frauds were discovered by an employee and exposed to the Securities and Exchange Commission, the free fall began for Enron. The shares dropped from 90$ to 1$,......

Words: 365 - Pages: 2

Scandal

...Lehman Brothers Scandal Corporate governance is defined as a system that control and direct a corporation (Shleifer 1997). Governance arrangement specifies dissemination of responsibilities and rights among different contributors in the corporation like financial managers, board of directors and shareholders. It also specifies procedures and rules of decision making in corporate affairs. Besides, corporate governance has plays its role to encourage organization to produce value through innovation as well as development process. Lehman Brothers would be further analyze and discussed in term of accounting scandal below. Lehman Brothers was the fourth largest United States investment bank when it collapsed and this has affected 25,000 employees worldwide. Thus, the significant factors that cause this scandal of corporate failure to be happened would be analysed below. Firstly, Lehman has high degree of excessive debt and leverage which mean ratio of total assets to shareholders’ equity in 2007. Furthermore, it has a huge mortgage securities portfolio that cause this corporate to becoming expose to declining market conditions (Chiquier 2004). Besides, it has the largest debt of $619m, which is the largest bankruptcy filling in history which surpasses Enron. Lehman’s shares decreases a huge amount of 48% concerning it would be the next firm to fail in its corporate governance as it is the second largest underwriter of mortgage-backed securities. Consequently, the declining......

Words: 572 - Pages: 3

Enron Scandal

...“ENRON SCANDAL” The Enron Corporation was the biggest in a series of scandals that damaged the reputations of corporations in the United States. It represented one of the largest fraud scandals in history. As a result, the company was said to force to file for bankruptcy in 2001 of December. This is where Sarbanes-Oxley Act was imposed with stricter rules on auditors and made corporate executives criminally liable for lying about their accounts. Enron was known as a provider of products and services related to natural gas, electricity and communications to wholesale and even retail customers. As an accounting major student I recognized that there were several doubtful accounting schemes that Enron used just to manipulate the employees, investors, customers and everyone. 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. The financials presented by Enron were restated. In 2000, the profitability was less than 1%, becoming clear that Enron’s profits were realizable only if the quality of their revenue is good but if not it is not realizable. Enron used SPEs or Special Purpose Entity this is used to keep Enron’s debts and losses away from its balance sheets, therefore allowing it have a good credit rating and look good in front of the investors. In this case it is purely seen as an investment scam. In the company were I worked on last......

Words: 590 - Pages: 3

The Enron Scandal

...| 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;......

Words: 2330 - Pages: 10

The Madoff Scandal

...The Madoff scandal 16 December 2008 The repercussions from the collapse of Bernard L. Madoff Investment Securities LLC, whose founder and owner was arrested last Thursday after admitting that his $17 billion investment advisory business was "a giant Ponzi scheme," continue to widen. According to a criminal complaint filed by the FBI and a civil action brought by the Securities and Exchange Commission (SEC), the elderly Madoff estimated that the losses from his fraud exceeded $50 billion. The tally of losses already reported by banks, hedge funds and wealthy investors climbed over the weekend to nearly $20 billion. Banks and hedge funds around the world—in the US, Britain, Italy, Spain, France, Switzerland and Japan—are reporting hundreds of millions and even billions in losses. University endowments, charities and other institutions that entrusted their money to Madoff or to hedge funds that invested in Madoff's company are reeling from the news that their investments are worthless. Prominent and wealthy individuals—including J. Ezra Merkin, the chairman of GMAC, Fred Wilpon, the principal owner of the New York Mets, Norman Braman, the former owner of the Philadelphia Eagles professional football team, Frank Lautenberg, the multimillionaire Democratic senator from New Jersey, and Mortimer Zuckerman, the owner of the New York Daily News—are among those who have lost millions. Among the thousands and even tens of thousands of individuals likely to be affected is no......

Words: 1060 - Pages: 5

Scandals

...was “a healthy product” that was merely mislabeled (Mintz, 1987). In court, when Hoyvald was asked why he didn’t immediately order a product recall upon first learning of possible adulteration, he replied, “And I could have called up Switzerland and told them I had just closed the company down. Because that is what would have been the result of it” (Traub, 1988). Hoyvald first claimed to have known nothing of the adulterated juice concentrate, then later said he had no proof of adulteration, and in any case he had been acting on the advice of Nestlé attorney Thomas J. Ward (who, by the way, had been involved in Nestlé’s response to the boycott against its infant formula marketing practices and, more recently, the Guinness financial scandal in Great Britain). Lavery claimed that he knew of allegations that the concentrate was adulterated, but had no proof. Nestlé attorneys, who defended the two, claimed that the blame belonged solely on the shoulders of lower-level employees (Welles, 1988). The Trial Ends The New York State case against Beech-Nut came to an end in March 1988, when the company paid a $250,000 fine in restitution for the crime of selling adulterated apple juice. The company was fined another $2 million by federal courts for the violations of federal food and drug laws to which it had pleaded guilty in the fall of 1987 (“Beech-Nut Pays,” 1988: D10). The final sanction levied against Beech-Nut came in April 1989, when it was barred from doing......

Words: 3659 - Pages: 15

Scandal

...asset of 556 billion, provides insurance service for more than 150 different countries and it has over 630, 000 employees over the world. Even though AIG is such a giant corporation, it has encountered financial problems in the early 2000s. Under financial pressure and a lack of internal control, AIG have committed frauds resulting in several scandals. One of the accounting scandals was disclosed during 2005 which involved a material mis-statement due to false transactions during 2000. This scandal set to prelude leading the downfall of AIG in 2008. In this paper, I will analyze the cause, the transactions and finally effects of the scandal. The Accounting Scandal The Players The CEO of AIG was Maurice “Hank” Greenberg. Greenberg joined AIG in 1962 and led AIG for thirty eight years until his retirement in March 2005. Greenberg was not only the CEO, but also the chairman of the board of AIG. AIG also have several subsidiaries, which include National Union Fire Insurance Company of Pittsburgh (NUFIC) and Hartford Steam Boiler Inspection (HSB). Their financial information are consolidated in AIG’s financial statements. The scandal also involves another corporation General Re Corporation. General Re is a subsidiary of Berkshire Hathaway, Inc., an investment group run by the billionaire Warren Buffet. General Re also has subsidiaries all over the world and together and it is one of the biggest reinsurance companies in the World. Reinsurance companies are entities......

Words: 281 - Pages: 2

Watergate Scandal

...It was suggested that the President had tried to repair the damages that were caused the Watergate scandal in the first article. From a speech President Nixon had given, it showed that there were a lot things that still needed to be done regarding the scandal. The article stated that the officials under the Watergate scandal were cheating, lying and engaging in illegal activities while in high positions of the government. The people believed that the president did not stand up to the crisis and that he had only done the bare requirements for the situation at hand. The people stongly believed that President Nixon should have done something more to eliminate the Watergate scandal as soon as it was leaked. The article had also showed that the people were not happy with President Nixon’s actions by only accepting the resignations of H.R. Haldeman and John Ehrlichman, (Genovese, 1999). He had also accepted the resignation of Attorney General Kleindienst and appointed Elliot Richardson and instructed him to handle the crisis. Finally, the President had made the correct decision by dismissing his White House Counsel John Dean. The second article portrays President Nixon as a good, moral leader. It tried to defend the President from being impeached by acknowledging his achievements. The article also showed that he was human and not perfect. The actions of the President by trying to resolve the crisis, led to speculations by the Chicago Tribune's editorial to leave office...

Words: 780 - Pages: 4

Deadpool 2 | Raised by Wolves | その他のカメラバッグアクセサリー