Notes
Name:
Step 1: Number the paragraphs
Accounting 110
Entering the 21st century, Enron and Arthur
Andersen were two of the most celebrated names
in corporate America. But the actions of a few
individuals forced financial mammoth Enron into
bankruptcy. Andersen, once one of the prestigious
“Big 5” accounting firms, was forced out of
business. These accounting scandals caused
hundreds of thousands of employees to lose their
jobs and millions of individuals to lose billions of
dollars in investment and retirement accounts.
The scandals rocked the public’s confidence in the
accounting profession and the stock markets.
Enron Corporation was an American energy
company based in Houston, Texas. Before its
bankruptcy in 2001, Enron employed
approximately 22,000 and was one of the world's
leading electricity, natural gas, pulp and paper,
and communications companies, with claimed
revenues of nearly $101 billion in 2000. Fortune
named Enron "America's Most Innovative
Company" for six consecutive years. At the end of
2001 it was revealed that its reported financial
condition was sustained substantially by
systematic, and creatively planned accounting
fraud, known as the "Enron scandal".
Step 2: (2pts)
Try to write one sentence that includes all
relevant info from paragraphs 1-2.
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After a series of revelations involving irregular
accounting procedures bordering on fraud
perpetrated throughout the 1990s involving Enron
and its accounting firm Arthur Andersen, Enron
stood on the verge of undergoing the largest
bankruptcy in history by mid-November 2001.
Executives of Enron knew that the company was
in financial trouble and instead of informing
employees of the situation encouraged them to
invest in Enron stock. As a result, a huge number
of families had their life savings in Enron while
executives sold their stock just before the stock
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price crashed. The executives, because they sold
the stock when the value was high, made billions.
After they sold their stock, the price crashed, and
employees and their families lost everything. If
employees and families had been told the
company was going bankrupt the stock would
have crashed sooner, and the executives would
have lost their money. The price of the stock went
from 90.00 a share, to about .02 cents a share.
That means that if you had $90,000 in Enron
stocks before the crash, you would end up with
just $20.00 after the crash. The Enron executives
who knew the crash was coming and sold their
stock quickly and quietly, stayed rich.
Step 3: (2pts)
Try to write one sentence that includes all
relevant info from paragraphs 3-5.
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Arthur Andersen, based in Chicago, was once one
of the "Big Five" accounting firms among
PricewaterhouseCoopers, Deloitte Touche
Tohmatsu, Ernst & Young and KPMG, providing
auditing, tax, and consulting services to large
corporations. In 2002, the firm voluntarily
surrendered its licenses to practice as Certified
Public Accountants in the United States after
being found guilty of criminal charges relating to
the firm's handling of the auditing of Enron, the
energy corporation, resulting in the loss of 85,000
jobs. Although the verdict was subsequently
overturned by the Supreme Court of the United
States, it has not returned as a viable business.
Arthur Andersen approved decisions that were
used to generate false profits, hide losses, and to
keep financing off Enron’s consolidated financial
statements. Also, Arthur Andersen failed to abide
by the Generally Accepted Accounting Principle
(GAAP). In addition, they did not advise Enron’s
audit committee that their CFO and his colleagues
were involved in significant conflict of interest
situations and making unethical decisions. As an
accounting firm Arthur Andersen’s responsibility
and job is to advise their client of both the legal
and ethical decisions that should be made. If the
client chooses to make illegal decisions then the
client should be reported by the accounting firm
at that point.
demonstrated, enterprises will fail. That’s despite
having some of the ‘smartest’ guys in the room.”
Enron filed for bankruptcy on December 2, 2001.
In addition, the scandal caused the dissolution of
Arthur Andersen, which at the time was one of the
world's top accounting firms. The firm was found
guilty of obstruction of justice in 2002 for
destroying documents related to the Enron audit
and was forced to stop auditing public companies.
Although the conviction was thrown out in 2005
by the Supreme Court, the damage to the
Andersen name has prevented it from returning
as a viable business.
Step 5: (2pts)
Step 4: (2pts)
Try to write one sentence that includes all
relevant info from paragraphs 6-8.
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Revelations concerning Andersen’s overall
performance in the audit of energy company
Enron led to the break-up of the firm, and to the
following assessment by the Powers Committee:
"The evidence available to us suggests that
Andersen did not fulfill its professional
responsibilities in connection with its audits of
Enron’s financial statements, or its obligation to
bring to the attention of Enron’s Board concerns
about Enron’s internal contracts over the relatedparty transactions".
Ethics are the principles of right and wrong that
guide an individual in making decisions. The use
of ethics in making business decisions is called
business ethics. “Just as character matters in
people, it matters in organizations,” says Justin
Schultz, a corporate psychologist in Denver.
Surely, if there are profits to be made, some type
of scheme that attempts to skirt the law or even
cross boundaries will occur. It’s been that way
throughout history.
Certainly, ethical dilemmas are not always black
and white and the situations that can lead to hard
choices can be as complex as the options
themselves. Some companies therefore struggle
with how to manage and measure ethics. “Ethics
and integrity are at the core of sustainable long
term success,” says Richard Rudden. “Without
them, no strategy can work and, as Enron has
Try to write one sentence that includes all
relevant info from paragraphs 9-11.
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Step 6: (4pts)
Using all your one sentence summaries, write
a 5 sentence summary about the entire
article. Make sure you have included enough
information that someone that has not read
the article would understand the main points.
- Use at least 2 transition words in the
summary. Transition words can be found
on pg. 11 in your Lancer Style Book.
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Step 7: (2pts)
List 2 words within the article you didn’t
understand. Write the word and its definition
below. Use the dictionaries on shelf to find
the definition.