Question

Question is about the Enron Scandal in 2001... There is no case study... it is just based off of the case in general. What impacts, if any, do international accounting standards have on the ethics of this case? If not applicable to this case, discuss possible overall impacts of international accounting standards for ethical situations in general.

Please provide sources

Answer 1

A unethical and illegal activities path was followed by Enron Company. Managerst was succumbing to greed and dishonesty by secretly exercising stock options and constructed fake falsely financial report which enabled to hide billions of dollars of debt. Using this approach Enron management created a noncompliance that existed different than GAAP or SEC reporting standards and abandoned the basic accounting standards of integrity. The main failure of the Enron accounting in terms of ethicas are as follows:

-- 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.

-- 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.

--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.

--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.

-- 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

　

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

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

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

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

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