Question

Answer the following questions related to the Enron case

1. What, if any, ethical issue is involved in this case?

2. If you were in the position of Jeffrey Skilling in Enron, knowing what was happening in your company, what position you will adopt:

1. I will do anything, since I am not responsible for other one’s job.
2. I will try to help the accountants to correct the accounting records before anyone notice.
3. I will try to pursue the accountants to correct the accounting records before anyone notice.
4. I will alert the board of directors and/or vice-presidents and lets them know what’s happening.

Answer 1

The ethical issue that was involved was that Enron was that they were reflecting better financial position than actual ones. In actual the performance was very low compared to the actual results. The results were overstated for the wealth maximisation of shareholders. They used mark to market reporting i.e. the assets were valued at their face values or current market values. They were actually using loopholes to accounting to hide their bankruptcy from the stakeholders.

After 7 years of formation of Enron in 1985, Jeffrey Skilling was hired and he worked very hard for Enron developing various strategies that benefitted Enron. It created a good image of Enron outside of the company in market in business terms but Internally Enron was on a lower side and he hired a group of staff under him who used accounting loopholes and reporting loopholes to report and hide the heavy debts on the company. He was announced as CEO in 2001 and resigned after 6 months. The audit reports were also manipulated.

If you were in the position of Jeffrey Skilling in Enron, knowing what was happening in your company:

(d) I will alert the board of directors and/or vice-presidents and lets them know what’s happening.

This will be followed by BOD taking necessary steps and making timely disclosures and public announcements.