Question

Evaluate the Enron Fraud and assess the impact of subsequent changes to corporate governance, accounting and regulations on financial reporting standards

Answer 1

The Enron scandal: Eventually led to the bankruptcy of the Enron Corporation, an American energy corporation based in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was cited as the largest audit failure.

Impact on Corporate Governance:

Separation of ownership and control in a large stock corporation would be of no particular consequence if the interests of owners and managers coincided.

Corporate governance is concerned with overcoming the problems of the monitoring and controlling of managerial performance. This occurs whenever corporate ownership and corporate control are separated as a result of dispersed share ownership.

The primary function of corporate governance is to ensure that companies will run based on the interests of corporate shareholders. However, these shareholders provide financial resources in running them. In the UK and US, owners of typical corporation are many, and their shares are small relative to the size of the corporation.

The collapse of Enron during 2001 has brought about a focused attention on the effectiveness of the non-executive director function.

The corporate board, with its mix of expertise, independence, and legal power, is a potentially powerful governance mechanism.

Effect on accounting and regulations on financial reporting standards:

Alongside its theatrical impact on the accounting profession, the collapse of Enron also had main collision on the company's employees, banks, investors, politicians, and of course on Arthur and Andersen. Thousands of Enron employees, many with similar skills, were left unemployed. Thousands of employees and retirees have lost about all the value' in their retirement accounts invested in the company's stock.

The AICAP is leading an effort to decrease the occurrence of financial fraud, which requires a team attempt among auditors, financial professionals and corporate management. The AICPA is working with corporate America in designing antifraud programs and controls to be implemented by corporations and that CPAs can test and report on. The AICPA sponsored a new antifraud summit for financial market executives and for corporate America; the summit identified new antifraud initiatives and ways to collaborate on implementing them. The AICPA is establishing an Institute for Fraud Studies in collaboration with the University of Texas at Austin and Association of Certified Fraud Examiners. This new organization will sponsor or conduct research in the areas of fraud prevention and detection. The goal is to deliver vital information to business and government on how to reduce the adverse impact of fraud and to help investors protect themselves.