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He Enron Accounting Scandal - Essay Example

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The Enron Scandal (Name) (University) (Course) (Tutor) (Date) Actions leading to the lawsuit Several things happened in the company that led to the lawsuit being filed against Enron. Many analysts have looked at the case of Enron and concluded that it was one of the biggest accounting scandals in the U.S history to be recorded…
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He Enron Accounting Scandal
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Download file to see previous pages Second is misrepresenting the earnings reports that made the executives enjoy investments as they continued to report fraudulent earnings to investors which still attracted others due to the apparent financial gains that were being reported. Third is that the top company executives were involved in embezzlement as they kept on pocketing investment funds from the unsuspecting investors that led to the bankruptcy of the company. Fourth is the company’s idea of mark to market accounting introduced by skilling that made it the first company to use such as complex method to account for its contracts. (Petrick & Scherer, 2004) This meant income could be recorded even without receiving the money and this increased financial earnings. This was fraudulent especially after the Blockbuster video contract that resulted in losses that were treated as profits by the company. Fifth action was poor financial auditing through the use of reckless standards that did not identify mistakes in reporting leading to the collapse of the company (Thomas, 2002). Risk management measures to avert the events Initially with the appointment of Skilling to the financial department, the CEO let him implement sophisticated risk control system at Enron. Embracing this new idea as a whole without first having to test it was a bad thing for the company (Culp, 2002). As much as ideas were initiated to adequate screening was made as members of the risk assessment group colluded with the management to approve deals. Therefore the first thing to do would have been to establish a flawless risk assessment group that was answerable to the board to avoid the events that led to the company’s collapse (Healy & Palepu, 2003). Secondly the company’s problems seemed to have emerged from the carefree attitude that was the norm for the management. They turned a blind eye to a lot of malpractices that were happening in the company making its situation worse. The company should have enforced a hands on management style instead of the hands off style that let the company run like a runaway train. Together with this the company should have enforced corporate governance ethics in order to eliminate such malpractices or reduce risks of them happening (Culp, 2002). The company should have also laid down the ground rules especially for the fiance department when it comes to reporting of the company’s earnings and other financial results. A simple accounting method should have been used and one that could be easily understood by shareholders and the board of directors so that people are not deceived into believing they have revenues which they do not actually have (Rosen, 2004). Ethical considerations of the laws applicable to the case The laws that applicable to this case specifically look at the issue of fraud and public misinformation. All financial information concerning the operations of any public owned company or any other company for that matter should be disclosed at the end of a particular period of time following the laid down rules and regulations of financial reporting. The law requires that company be responsible in their conduct and relationship with various stakeholders so that each of the party enjoys the outcomes that are got from operating the business. The laws also require that the management acts in ...Download file to see next pagesRead More
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