Question

Question is about the Enron Scandal in 2001... There is no case study... it is just based off of the case in general Does the company have a specific code of ethics? Were any of the components of the code violated? Discuss. Determines if the ethical violations identified in the case violate components of the company’s own Code of Ethics and describes each violation in detail

Please provide sources

Answer 1

The biggest losers in the Enron scandal were investors, shareholders and employees. All of them lost a huge amount of money from the Enron stocks when the company bankrupted. Enron was a company that thrived use of latest technologies and had a code of ethics that prohibited managers and executives from being involved in another business entity that did business with their own company. However, the codes of ethics that was voluntary and was set aside by the board of directors and the top management. The legal structure allowed top management to enter these arrangements, that constituted a conflict of interest and while it's a fiduciary duty the managers and executives had to behave and act in the best interest of the company and its shareholders. But there was discretion for them to exercise their own business judgment regarding what was in the best interest of the company. A path filled with unethical and illegal activities was followed. Management was succumbing to greed and dishonesty by secretly exercising stock options and constructed faulty falsely financial report which enabled to hide billions of dollars of debt. Enron management abandoned the basic accounting standards of integrity and created a noncompliance that existed different than GAAP or SEC reporting standards. The main cause to the failure of the Enron accounting are as follows:

-- Poor Management Accountability: Weak management was virtually not accountable to anyone as long as the company showed dramatic stock increases that were justified by the growth in the earnings.

--Accounting Rules: The accounting activities became more complex and rule-oriented. Accounting permitted practitioners to take obscure pronouncements, like dealing with Special Purpose Entities that were primarily designed for transactions of leasing, and apply the pronouncement to certain entities for which these accounting was never intended.

-- Weak Corporate Governance: Although the board seemed to be independent, but majority of the board members had close ties to company managers through philanthropic organizations.

--Enthusiastic Financial Analyst Community: The analysts that were riding the bubble of the financial dot-com economy made a conclusion that they did not have proper tools for the valuation of the emerging companies.

--Biased Banking and Investment Banking: Several big financial institutions were willing participants in the process as they were promoted with large underwriting fees for other Enron work.

-- Lack of an Independent External Auditor: During the time of Enron, there existed mainly five large external auditing firms who were referred as professional service firms with their business in diverse line. All such firms had big consulting practices. The internal audit work for Enron was performed by Arthur Andersen. Moreover the consulting fees of several clients dramatically exceeded the audit fees. On the basis of revenue and profitability partners were compensated. To make it worse the auditors were hired by top managers who sometimes succeeded to put pressure on auditors to acquiesce to aggressive financial reporting preferences

　

Refe: home.utah.edu/~u0343164/barton_files/barton_enron_case.docx

http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6622.2006.00092.x/abstract

www.aei.org/publication/enron-and-accounting-issues/

https://bizfluent.com/how-does-4911332-what-caused-enron-collapse.html

https://www.ukessays.com/essays/economics/causes-enron-collapse-3940.php