Ethical Issues Evident In Enron Case Accounting Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Ethics play an important role in aligning the resources and employees of the business organization for attaining the goals and objectives. Ethical conduct of business processes assists an organization in being successful in concern to the increasing globalization and competitive business environment. In persuasion to significant position in global business most of the companies adopt a wrong way to do business that in turn only results in ethical dilemmas.

One of the historical examples of an ethical dilemma that deal with global business is of Enron Scandal. For attaining a prominent position in its global environment, the company adopted a wrong way to do business. Enron Corporation is the seventh largest corporation in the United States. Its bankruptcy in 2001 was the most disastrous, devastating and largest bankruptcy case in the histories of US (Salter, 2008).

The employees, investors, shareholders and all associated with this corporation lost more than $ 60 billion, and the market shares also gone down. The fraud and conspiracy resulted in strict economic, financial and accounting regulations. The Enron case imitates the ambiguities of the company and its top management (Ethics Issues at Enron, 2009). The unethical conduct of its employees, analysts and banks involved does not reflected well on certain facets of American capitalism.

Ethical Issues Evident in Enron Case

Ethics are the code of moral judgment. In the present scenario, it is not easy to persuade the investor, so companies have to follow some guidelines and deal with some ethical issues (Bennett, 2002). Enron was a leading company in the US and was involved in the energy trading, but it got bankrupt due to its unethical behaviour. Company showed high profit on the papers, low liability value and got good credit rank with the crediting agencies (Weinstein, 2002).

This was the unethical act and the company as well as investors, both had to incur huge losses for this. So, the company should have taken proper care while making the financial statements. This scandal of Enron manifested the requirement for a whole re-evaluation of ethical quality of business culture within contributing organizations and the renewal of accounting and corporate laws regarding these wrongful conducts (Salter, 2008). The most significant ethical issues evidenced in case of Enron can be explicated from a personal, organizational and systemic level.

The personal level pertains to the causes that drive greediness and ill conceptualized acts within a person. The organizational level pertains to the causes of harmful and immoral decisions arrived at among groups of individuals and the systematic level depicts reasons that are mainly driven by external influences like significant position in global business and competitive environment (Ethics Issues at Enron, 2009). All these three levels exhibit the all-inclusive causes behind the scandal which finally contributed to the failure of Enron.

With this example of ethical dilemma it can be said that a firm should never show the manipulated value of the assets and liabilities as with this act, number of others people involved can incur huge losses. The company accountants should have followed the proper accounting norms and rules in making the financial report of the company. The investors blindly believe on the report of the accountant, so it is very unethical on behalf of Enron's auditors, who exhibited fair reports rather than the actual situation.

Ethical Perceptions across Cultures in regard to Enron Case

The ethical dilemma occurred in case of Enron was the biggest example of the history. The company's Board of Directors and auditors behaviour was unethical in concern to the ethical perceptions made across cultures regarding company accounts and reports (Weinstein, 2002). According to the business researches and well-known leaders it is said that corporate managers are anticipated to maximize investor returns while abiding with regulatory standards', keeping off principle-agent conflicts of interest and heightening the reputational capital of their firms (Buondonno, David, Pufky & Rollings, n.d.).

In case of Enron all these aspects were neglected which are followed as a standard across different organizational cultures. Enron didn't follow the regulatory standards of accounting principles and there was also conflict of interest between two roles played by Arthur Anderson, as auditor but also as consultant to Enron.

The company's Board of Directors were also wrong at their conduct as they didn't paid much attention to the off-books financial entities with which Enron did business. In addition to this they also used to hide the real situation of the company and its business operations' by its management, which was also wrong as a company is required to be truthful to its management in its every aspect. The company's auditor and accountants also mislead the management and investors, which was also wrong as they are always required to present the truth.

Risks and Consequences associated with Enron Scandal

With this devastating scandal, various risks and consequences were associated in concern to the company image and operations. The most significant risks were the down fall of the company and the immense losses to associated individuals and entities. The unethical conduct of the company was related with the damage to several parties admitting banks, stockholders, politicians and former employees (Buondonno, David, Pufky & Rollings, n.d.). In addition to this, it was also clear that with this the company would lose its listing from the New York Stoke Exchange, which itself is the most devastating consequence to its image.

With the presentation of overstated earnings of the company, it was also confirmed that it would direct the company towards severe investigations, claims, lawsuits and heavy debts & losses and similar was the situation after the truth came out (Aiyar, 2001). Another crucial risk of this unethical behaviour was related with the loss to its employees and after this scandal, the company employees found themselves unemployed with valueless 401K accounts, leaving their retirement funds almost empty (Ethics Issues at Enron, 2009). The company's investors and stakeholders also conferred heavy losses and eventually the company went bankrupt.