Accounting Scandal - Research Paper Example

“In 2000, Enron donated $1.76 million to the presidential campaign of the Republican George W Bush” (Davis, 2007, p83). This showed an unhealthy connection between the public sector and the private sector and this came back to haunt the firm and attempt to tarnish the image of some public figures. Kenneth Lay, the chairman of the board of directors and founder of Enron contributed more to George Bushs campaign more than any other person. Although no evidence was found that proved that there was direct bribery from the staff and management of Enron to public officials, many of them were found guilty for their involvement in what became a scandal.

This is mainly connected to the overrides of the reporting requirements and expectations that were put in place. Enron maintained a complicated account structure and there was the difficulty of external stakeholders to demand more information and transparency. The management therefore got away with a lot of issues that were unreported and the scandal was eventually exposed by a whistleblower who reported the issue and matter to the authorities for prompt action. Enron used very inappropriate and wrong methods and procedures to record its accounts.

Due to the fact that the firm had an influence over the political arena, Enron was able to get away with a lot of its poor and negative accounting practices. Enron used various techniques to provide misleading reports and information about their trading position. Basically, they used the revenue model and this sought to record revenue only and did very little concerning other important and relevant aspects of reporting (Campbell, 2008). This is know as the “agent” and “merchant” models of accounting.

To this end, Enron created a system through which they set up false and other puppet entities to act as their agents. In this quest, the “agents” signed contracts and undertook very risky ventures in the name of Enron. These