Enron Case Study

Instructions

Please answer the following questions in detail in your own words. Utilize the video clips we watched in class The Smartest Guys in the Room, the textbook, and your own internet research to help in your responses. If you use any direct quotations, please include your sources.

1. Why did the Enron case surface?

The Enron case surfaced when senior management of Enron was practicing unethical practices; making to company appear too good to be true. When in reality Enrons leadership and management has major defaults. Enrons management tried to misinterpret the companys financial situation, leading to the surfacing of the Enron case. (3 Marks)

2. Who should bear the blame?

Stakeholders like accountants, bankers, auditors and lawyers should bear the blame for failing to perform responsibilities. Stakeholders should bear the blame due to the accounting firm who was in charge that restated the profits for the past four years where appointed by the stakeholders. Profits were admitted to have inflated due to conceal of debt in the partnership arrangements.

The accounting firm that was in charge of Enrons accounts shredded key documents because of the lawyers advice. Stakeholders such as the Board of Directors and the senior management should equally share the blame as well. (5 Marks)

3. Should the accountant/auditors be responsible for the Enron Case? If yes, in what aspects?

Yes, the accountant/auditors should be responsible for the Enron Case. A few main aspects including the following:

• Accountants were manipulating the data of the company directed by management. Manipulating data may include but not limited to mischarging certain expenses record intentionally or when company makes cash payment but only reports in expenses and revenue.
• Bribery and conflicts of interest within the accountants was also a major reason for the downfall of Enron.
• Auditors were helping senior management conceal bad practices; including but not limited to concealing liabilities and the debts in the complicated partnership arrangements.
• Arthur Anderson, the auditor in charge of Enrons accounting, shredded all Enron documents thus destroying evidence relating to its relationship with Enron. (8 Marks)

4. What kind of precautionary measures do you suggest to prevent a similar event happening again?

In the case of Enron, we learnt that an improved and much more advanced corporate governance was required with the enforcement of the legal actions. With the enforcement of legal actions, accountability of certain individuals would need to be ensured through the organization by using procedures to reduce impact of another agency problem. We also seen that mark-to-market accounting was proven to be unreliable; in the case of Enron mark-to-market accounting later backfired

5. What is corporate governance and how would it work for Enron?

6. Describe what SOX did as a response.

I have completed questions 1-3; I just need help completeing 4-6.