"Enron paid Andersen $25 million for its audit…and $27 million for 'consulting' and other services" which meant that Anderson had a substantial financial stake in retaining Enron as a client (Kadlec 2002). The Enron case illustrates the difficulty of self-policing within the industry. Today, providing additional services besides the audit itself is considered an ethical 'red flag' for an accounting firm (Verschoor 2012).
In retrospect, it is difficult to see how the Enron case could have had a happy ending, given that its business model was based upon fraud and deceiving investors. The best case scenario would have been for Anderson not to take the case at all. That is why effective pre-screening of clients is so important. "Practitioners must assess the ethical environment found within potential and existing clients and business partners" (Romal & Hibschweiler 2004). According to Sarbanes-Oxley Act, CFOs must sign a code of ethics. If no such requirement exists, the company must provide an explanation as to why. There seemed to be a clear conflict of interest in the firm taking the case at all. "Two of Enron's senior financial executives had previously worked for Andersen in Houston: Richard Causey, Enron's chief accounting officer, and Jeffrey McMahon, chief financial officer" (Kadlec 2002). The root of the scandal did not lie in the hands of certain employees uncertain of Anderson's expectations regarding corporate ethical standards: rather top personnel at the accounting company actively impressed upon employees that they were to do all they could to keep Enron solvent, versus doing a competent and rigorous audit.
Sarbanes-Oxley Section 404 has also tried to make it easier for investors to evaluate the solvency and ethics of a company even before a formal audit is issued. SOX "requires public companies to disclose whether or not they have adopted a code of ethics applicable to their senior financial officers" to the public and "for companies listed on the New York Stock Exchange (NYSE), this requirement has been expanded to require listed companies to adopt and disclose on their websites a code of business conduct and ethics for directors,...
Accounting Ethics Ethics of Accounting There have been breaches in the ethics of accounting in recent times. With that in mind, evaluate whether or not the current trend in the regulation of business establishments is favorable to ethical behavior. Supply supportive evidence to your answers (Jeter, 2003). The generally accepted principles of accounting and the standards of auditing in contemporary practice stipulate that the financial statements of any establishment should contain the following
Accounting of Enron In recent months the rules regarding special purpose entitles have come under great scrutiny. Special purpose entities allow firms to raise debt while at the same time making it almost impossible for investors to determine the actual amount of debt exposure. ("Special Purpose Entities are Often a Clever Way to Raise Debt Levels") Thus was the case with Enron, which collapsed in 2001 when their fraudulent accounting practice
Take for instance their financing of political campaigns, which offered them access to political laws and regulations, made in their favour. However sponsorships of political parties are legal, the results Enron retrieved were immoral. Another dubious partnership was that with audit and accounting firm Arthur Andersen. The partnership was unethical but possible due to the lack of specific judiciary regulations and it was marked by numerous conflicts of interest. Altering
Accounting Ethics A Sad Tale: The Demise of Arthur Andersen Arthur Anderson was once a major accounting firm. The failure of the firm in 2002 may be attributed to bad ethical decisions which ultimately came to a head with the Enron scandal,. This scandal resulted not only in the loss of many clients prior to the SEC talking action against the firm, but the firm facing and being convicted of a felony.
From all facts and appearances, those Enron executives gave lip service to ethics, then went on their own way, making as much profit as they could while the company teetered on collapse. One final example from Enron's "Code of Ethics" is titled "Twenty-Twenty Hindsight" which carries its own irony without delving into its points. Lay writes on page 10 that if any employees' security activities or transactions "become the subject
They weighed the greed of the few against the good of the many and decided in selfish favor. Without protection from this sort of corporate greed, American investors would be less inclined to invest at all. One can see the effects of just the one incidence of betrayal to investor confidence and the lack of funding in the energy sector following Enron's demise, to begin to appreciate what corporate scandal
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