Case Study Enron Scandal
1. Five standards/principles that Enron violated
a. Enron used the mark to market accounting method to boost
their actual revenue to attract a lot of investors, when in fact it’s
just their estimated revenue and also to increase their stock
price.
b. Enron manipulate the derivatives resulting to overstated income
and equities and the management used it to cover their debts
and losses from the public.
c. The off-balance sheet method take part on the scandal wherein they misuse
of the Special Purpose Entities (SPEs) to cover their losses and debts from
their investors.
d. When Enron entered into a contract with Blockbuster, Enron did
to their future revenue from the contract was they took and
booked it as a revenue today overstating their income and
equities resulting to high stock price.
e. The accounting firm that handled Enron which is Arthur Andersen
act as their auditor and the consultant who happens to know
the fraud activities inside the company approve the company’s
report and help them to hide the wrong doings.
2. 3 unethical acts in the Case
a. The misuse of Special Purpose Entities (SPEs)
- Enron stock fell down, their SPEs also fell. This situation
trigger the Enron’s executives to do something about their
losses so they misuse of the SPEs by using it as their shield
when one their asset are falling in value to cover their
losses and make it as their profit and at its discovery they
justify it that they did nothing wrong.
b. The executives mislead the board about the financial status
of Enron and on the risks of the accounting practices that was
applied
- Due to the fraudulent act of the executives and the greed
of power and wealth. The executives decide to cook their
books if the situation is unfavorable on their side and
present to the people that they are still continuing and
progressing but when their acts are discover they denied it
like what Jeffrey Skiing did.
c. The irresponsible act of the executives
- So the executives put their self-first before the stake of the
company. When the company is in trouble they find a way
that would fed their needs first then the company. So
when they can’t handle the problem they made they sold
their stocks then leave the company before its downfall.
3. 3 changes that were made to Accounting and Auditing standards brought by the Enron
Case.
Because of the Enron scandal the Sarbanes Oxley Act was created to help in
minimizing fraudulent act in a company or organization the followings are just
pinch of the changes made:
a. Auditors will report all the new information to the audit
committee not to management.
b. The Audit committee will approve the audit and non-audit
services by its auditor.
c. There will be a rotation of duties between the lead audit partner
and the audit review partner.