Enron Scandal Essay

The reason of Enron Corporation downfall for audit failure is conflict of interest and accounting fraud. This is because it has been suggested that conflicts of interest and a lack of independent oversight of management by Enron's board contributed to the firm's collapse. Some have suggested that Enron's compensation policies engendered a short–sighted focus on earnings growth and stock price. In addition, recent regulatory changes have focused on enhancing the accounting and strengthening internal accounting and control systems. In these issues, it begin with Enron's board. The conflict of interest between the two roles played by Arthur Andersen, as an auditor, he also as a consultant to Enron Corporation. While investigations continue, Enron Corporation has sought to salvage its business by spinning off various assets. As that, Arthur Andersen actually has admitted some...show more content...

It also help to understand the real meaning of Shareholder Wealth Maximization. Enron Corporation scandal also help to conceal the true of financial statement and ensure that investor fund. When the time of Enron's collapse, it was the biggest corporate bankruptcy ever to hit the financial world. But then WorldCom, Lehman Brothers and Washington Mutual have surpassed Enron as the largest corporate bankruptcies. The Enron scandal drew attention to accounting and corporate fraud, as its shareholders lost $74 billion in the four years leading up to its bankruptcy, and its employees lost billions in pension benefits. The Sarbanes–Oxley Act has been called a "mirror image of Enron, the company's perceived corporate governance failings are matched virtually point for point in the principal provisions of the Act." Increased regulation and oversight have been enacted to help prevent or eliminate corporate scandals of Enron's Get more content

The Enron Scandal Facts Of The Case

Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Enron 's predecessor was the Northern Natural Gas Company, which was formed during 1932, in Omaha, Nebraska. It was reorganized during 1979 as the main subsidiary of a holding company, Inter–North which was a diversified energy and energy related products company. During 1985, it bought the smaller and less diversified Houston Natural Gas company.

> Employed approximately 20,000 staff

> One of the world 's major electricity, natural gas, communications, and pulp and paper companies.

> Revenues of nearly $40.1 billion.

Enron was almost universally considered one of the country 's most innovative...show more content...

Problems Of The Case

1. The need for significant reforms in accounting and corporate governance in the United States, as well as for a close look at the ethical quality of the culture of business generally and of business corporations in the United States.

2. A private company like Enron currently hires and pays its own auditors. This again is a conflict of interest built into our legal system because the auditor has an incentive not to issue an unfavorable report on the company that is paying him or her.

Alternative Courses Of Actions

1. Current laws and SEC regulations must not allow firms like Arthur Andersento provide consulting services to a company and then turn around and provide the audited report about the financial results of these consulting activities.

2. And if the first ACA is not applicable, the company should have better financial disclosure mechanisms. Expense claims should be processed properly with an allocated time to properly check the finances and expenses. This is to correctly audit and make a balance sheet to show where the money was used and to check the profits of the company. And not for the staff to make poor performances. And also separate auditing from consulting functions.

The Best Alternative Courses Of Action

The best solution for this Scandal was the ACA 2. The company should have better financial disclosure mechanisms. Expense claims should be processed properly with an allocated time to properly