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Discuss the extent to which regulatory reform, prompted by the failure of Enron, has been successful by reference to the financial crisis and more recent developments - Essay Example

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At first sight, it can be seen as that the senior executives of Enron is responsible for the failure. But they were operating on the consent of Board of…
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Discuss the extent to which regulatory reform, prompted by the failure of Enron, has been successful by reference to the financial crisis and more recent developments
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Discuss the extent to which regulatory reform, prompted by the failure of Enron, has been successful by reference to the financial crisis and more recent developments

Download file to see previous pages... According to the Federal securities law, the financial statement of any listed company should be certified by an auditor. In case of Enron, it gave much attention the outside audits. The independent auditor of Enron was Arthur Andersen who was taken into justice charges due to the destruction of documents activities. Enron collapsed not due to it was a big organization but the main reason was that it was shown as much bigger than it really was. Publicly traded companies need to publish the information related to their financial statement but in case o9f Enro9n, some imaginary transactions were shown between the parent company and its subsidiaries that covered the true financial position of the firm (Jickling, 2002).
It was the fault of the board of directors to oversee the issues in corporate management to protect the stakeholders’ interest. In the year 1999, the board of directors ignored a conflict of interest to permit the CFO in creating private partnerships. But the transactions that were involved in the partnerships included losses and debts which had a bad impact on the reported profit of Enron. The collapse of the company raises the concern about the capability of directors and bill was passed to question any unauthorized dealings done by the corporate managers (Gudikunst, 2003).
The core business of Enron was energy and it was involved in trading of derivative contracts which were based on the prices of gas, oil and electricity. These types of contracts allowed the buyers to hedge the risk that was caused by increase or decrease in energy prices. As the market in which the company traded were highly unstable thus there were very little information available about the actual financial condition of Enron other than which was in the financial statement. Thus the buyers were influenced by the financial statement without knowing the actual fact and traded speculatively which was a high risky activity for Enron (Rantanen, 2007).
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