ENRON SCANDAL
Enron scandal is a series of events that resulted in the bankruptcy of the U.S. energy,
commodities, and services company Enron Corporation and the dissolution of Arthur Andersen
LLP, which had been one of the largest auditing and accounting companies in the world. The
collapse of Enron, which held more than $60 billion in assets, involved one of the
biggest bankruptcy filings in the history of the United States, and it generated much debate as
well as legislation designed to improve accounting standards and practices, with long-
lasting repercussions in the financial world (Bondarenko, 2018).
The story of Enron Corp. is the story of a company that reached dramatic heights, only to
face a dizzying fall. Its collapse affected thousands of employees and shook Wall Street to its
core. At Enron's peak, its shares were worth $90.75; when it declared bankruptcy on December
2, 2001, they were trading at $0.26. To this day, many wonder how such a powerful business, at
the time one of the largest companies in the U.S, disintegrated almost overnight and how it
managed to fool the regulators with fake holdings and off-the-books accounting for so long
(Segal, 2018).
Enron was formed in 1985, following a merger between Houston Natural Gas Co. and
Omaha-based InterNorth Inc. Following the merger, Kenneth Lay, who had been the chief
executive officer (CEO) of Houston Natural Gas, became Enron's CEO and chairman and
quickly rebranded Enron into an energy trader and supplier. Deregulation of the energy markets
allowed companies to place bets on future prices, and Enron was poised to take advantage. In
1990, Lay created the Enron Finance Corp. To head it, he appointed Jeffrey Skilling, whose
work as a McKinsey consultant had impressed Lay. Skilling was at the time one of the youngest
partners at McKinsey (Segal, 2018).
Skilling joined Enron at an auspicious time. The era's regulatory environment allowed Enron to
flourish. At the end of the 1990s, the dot-com bubble was in full swing, and the Nasdaq hit
5,000. Revolutionary internet stocks were being valued at preposterous levels and consequently,
most investors and regulators simply accepted spiking share prices as the new normal (Segal,
2018).
QUINTO, Leanne Joyce H. ABMA12-2P Ms. Jeniel Dasig
ETHICAL STANDARDS VIOLATED
Firstly, Enron’s competitive environments and rigorous performance evaluation standards
caused a culture of deception. Since employees were worried about losing their jobs, they only
focused on how to make their performances look good. They ignored the ethical standards-
INTEGRITY and HONESTY, and only focused on the achievement of their financial goal.
After a few employees began cheating on their works, the only way to beat these persons was to
cheat more. Gradually, no persons felt shame about cheating because they had no other choices
and all their co-workers surrounding them were cheating. This caused a culture of deception.
Secondly, encouraging employees to invest and buy stock in Enron when they knew the
truth about the lack of value in the stock. Didn’t they lose their MORALE and INTEGRITY? Yes
they did. As an employee, you trust in your management to make the best choices both for you and
for the business to succeed. But what did they do? Instead of adding a progress to the company,
they cheated on it resulting to more serious matter regarding Enron scandal.
Thirdly, the managers didn’t act FAIR to everything. They did exercise or used their power
for their own personal advantage and they took advantage of other people’s weaknesses.
And lastly, they even violated the ethical standard of ‘Being a Leader’. The management
made a decision that doesn’t firm and flexible on the situation. They didn’t become a role model to
their employees and failed to establish their integrity and credibility among their customers.
Leadership should be guided by ethical standards but they failed to do it.
RESULTS
The scandal resulted in a wave of new regulations and legislation designed to increase the
accuracy of financial reporting for publicly traded companies. The most important of those
measures, the Sarbanes-Oxley Act (2002), imposed harsh penalties for destroying, altering, or
fabricating financial records. The act also prohibited auditing firms from doing any concurrent
consulting business for the same clients (Bondarenko, 2018).
The results also 4500 employees lost their jobs because of that scandal. Additionally,
investors lost some $60 billion within a few days; the pension fund for the company's employees
was obliterated; losses on the financial market amounted to the worst stock value loss in peaceful
QUINTO, Leanne Joyce H. ABMA12-2P Ms. Jeniel Dasig
times; banks were suspected of collusion; the auditing firm Arthur Anderson lost its
accreditation; and the close ties of the company's founder, Kenneth Lay, to US President George
W. Bush – Lay was an important financial supporter of Bush – came under sharp criticism.
RESPONSIBILITIES OF THE ACCOUNTANTS
All auditors, including accountant, are to maintain an unbiased attitude and they are also
required to maintain a healthy level of skepticism - knowing fraud and misstatements could be
present, but not judging without the supporting evidence that would arise from a proper audit,
which is another element that was never actually provided by Duncan. Duncan was responsible
for providing the best professional service that he was capable of, to his employer, Arthur
Andersen. Duncan also had a responsibility to Enron's management, which was to perform a
thorough, clean audit. Auditors don't audit companies for the benefit of the company; they audit
companies for the benefit of the shareholders.
Although accountants competently perform many different services for their this note
will focus specifically upon the role of the certified public accountant as an auditor for public
corporations. In such an external audit, an independent certified public accountant will issue an
opinion on whether the public corporation's financial statements are presented fairly in
accordance with generally accepted accounting principles. A public corporation is a corporation
required by the Securities and Exchange Commission to register its securities before transacting
with the public.
The accountants’ general duties are to prepare asset, liability, and capital account entries
by compiling and analyzing account information. Also documents financial transactions by
entering account information. Lastly, recommends financial actions by
analyzing accounting options.
QUINTO, Leanne Joyce H. ABMA12-2P Ms. Jeniel Dasig