The Events Leading To The Collapse Of Enron Accounting Essay

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Enron is an American Energy Company based in Downtown Houston, Texas which began in 1985 and prospered fast claiming revenues of nearly $101 billion in 2000, to electricity-generating plants and water companies, Enron added many businesses outside of the energy field, such as newsprint, broadband cable, and fiber optics. Its prestige and stock price soared. But by early 2001 Enron, though valued at $60 billion, began a collapse into bankruptcy. Its extension into unprofitable businesses and accounting practices that disguised the true financial position of the company were among the reasons. It was revealed that it's reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal". The scandal also affected the wider business world by causing the dissolution of the Arthur Andersen accounting firm.

The result is a huge corporate, financial, accounting, federal regulatory and political scandal as well as a disaster for thousands of Enron employees and investors. At least ten Congressional committees are now investigating Enron and its accounting firm, Arthur Andersen. While Enron may have engaged in illegal business activities -- for example, both Enron and Arthur Andersen have shredded many business records.

Review of Literature:

Evidence of a thorough review of relevant literature (a minimum of 8 articles)

Question 1:

i. Conduct your own research on the events leading to the collapse of Enron and list the series of questionable business deals by Enron, in particular, between Enron and Raptor, and between Enron and Condor. How those deals were accounted for in the financial statements? (12 marks) (Around 750 words)

Organization is charged with the responsibility to function in an ethical fashion. In the early 2000's the largest or most well known business failure occurred. Enron was exposed for their immoral practices and not only was the organization held responsible, but the individuals involved were also.

Once the seventh largest company in America, Enron was formed in 1985 when Inter North acquired Houston Natural Gas.Enron was an energy company that grew to be the middleman for energy companies that allowed them to exchange energy contracts. Their growth was very impressive and the business expanded into other facets including Internet services. Enron had created over 3000 special purpose entities in between 1993 to 2001. Special Purpose Entities (SPEs) are defined as entities formed for some specific purpose or activity. The primary purpose of creating an SPE is to remove assets and liabilities from the balance sheet of the sponsor thereby artificially improving leverage, return on asset and return on equity ratios. These SPEs were also established to keep Enron's credit rating high, which was very important in their fields of business. Because the executives believed Enron's long-term stock values would remain high, they looked for ways to use the company's stock to hedge its investments in these other entities.

As Enron grew, they needed to borrow more and more money. To keep the debt off of Enron's books, they began to create spin out organizations that were used to hide over $600 million in losses that were truly created by Enron. By hiding their debt, Enron looked like a very successful company. Until October 22nd, 2001 when the Securities and Exchange Commission (SEC) announced they Enron was under investigation.

The first reason for the collapse of the company was that the company was leveraged through debt. The second was the fall of the stock price. This caused issues with their debts and resulted in credit downgrades. The third stage was the increased cost of borrowing due to the credit down grades that caused liquidity issues for Enron. Throughout 2001, there were several instances that would have drawn red flags to the upcoming demise. Fortune Magazine ran several articles that questioned the company's debt process and methods of generating income. In August 2001, Jeff Skilling placed his resignation from CEO. Then, in October 2001, Enron came out with losses over $600 million. Ironically, that is the same amount that was being sheltered under Chewco Investments. After filing for chapter 11 bankruptcies in December 2001, the U.S. Justice department began a criminal investigation.

The creative accounting practices provided by Arthur Anderson (AA) can also be included in the fall of Enron. As their auditor, AA was an extension of the Enron organization. In October 2001, AA destroyed almost all of Enron's books. Arthur Anderson had helped Enron to form the spin out organizations and hide their losses. All of these behaviors between Enron and Arthur Anderson were reasons for the fall of Enron.

Enron was exposed for their immoral practices and not only was the organization held responsible, but the individuals involved were too. There are specific organizational behavior theories that could have predicted Enron's failure such as the debt that was hidden under other businesses or the changes in upper management with no clear reason being provided. In addition to the organizational behavior the leadership, management, and organizational structures contributed to the public failure of one of the largest companies in the world. Their accounting firm, Arthur Anderson, was not innocent in the scandal whatsoever. In the end, leaders and managers from both organizations paid the price for the mess that they had created. Not only were the organizations held responsible, but several individuals reaped the repercussions as well. This situation shows the immense impact that leaders and managers have on an organization. They can control whether an organization acts ethically or if the organization becomes greedy and does whatever necessary to be profitable and viewed positively in the public eye.

Enron involved in partnership business deal with its various SPEs. The deals with CALPERS, ZEDI, RAPTER, CONDERS were those deals and the accounting treatment of those transactions, were responsible for inevitable demise of the Enron Company.

Deals with Raptors

Enron had created a partnership aiming to buy and sell stocks of other companies. Enron lent the partnership $ 500 million in Enron stock to operate Raptor and also guaranteed the load by promising to give more stock if Raptor was unable to repay the loan. Raptor issued a note to Enron that Enron considered assets. Raptor then bought stock in companies like Avici, a maker of high-speed net-working equipment, and the New Power Company.

Enron treated the loan to Raptor as an assets and claimed profit on the rising value of Raptor's holdings. The transaction worked until the stocks of the companies owned by Raptors fall down. Raptors could not pay the loan. Enron was obliged to cover the Raptor's loan as it guaranteed for that, it had to issue more and more shares although its own stocks were declining.

Deals with Condor

Condor is another SPEs. The executives of Enron created another partnership called condor to sale and buy the assets in the best possible price. Condor was established to buy assets from Enron. Enron had lent the partnership shares to Condor of Enron's stock.

Accounting treatment of the Enron's deals with Raptor and Condor

Raptors were not controlled by an independent party which possessed the substantial risks and rewards of ownership, so these entities were part of Enron and should have consolidated into Enron's own financial statement. But Enron recorded all the gain or losses including all the hedge transactions of its SPEs entities and did not consolidate it into its financial statements. Enron executives structured the deals so that losses would not show up as earnings, but instead as reductions of shareholder equity that had no effect on the income and earnings statements.

Enron recognised $800 million in cash flow from condor. In fact Enron should instead have been accounted for as an issuance of stock, But Enron counted it as cash flow.

Although some details are still murky, one thing is clear: Arthur Andersen, Enron's outside accountant, is in big trouble, and it (or its insurers) will have to fork over big bucks. Andersen's big problem stems from a company called JEDI--as in "Star Wars"--that Enron now says should have been on its books since 1997. Andersen allowed JEDI to remain off the books for years. The other deal, involving a company called Raptor, caused the net-worth disappearance that set Enron on the road to ruin.

JEDI stands for Joint Energy Development Investments. It was a partnership between Enron and the California state-employees' pension fund, known as Calpers. The Force was with Enron, which invested the money--$250 million each from itself and Calpers--in power plants, energy stocks and such, making more than 20 percent a year. Pretty neat. In late 1997, Calpers was willing to invest $500 million in a new partnership, JEDI 2. But it wanted to first cash in its JEDI 1 chips, worth $383 million. Instead of just liquidating JEDI, Enron got cute. (I'm not sure why. Enron declined to comment.) It went looking for an outsider to fork over $383 million and take Calpers's place. Enter something called Chewco Investments--as in Chewbacca of "Star Wars" fame. Chewco was a partnership of Enron employees and some undisclosed outsiders. (Who they are and how much they made is a mystery, because Chewco is a private entity.) Chewco's investors didn't have a spare $383 million. So Enron lent Chewco $132 million and guaranteed a $240 million loan that Chewco took out elsewhere. Enron was thus at risk for its own JEDI stake and essentially all of Chewco's. That being the case, it's a mystery why Andersen let Enron keep JEDI off its books. Accounting experts who have looked at this transaction, which Enron disclosed last month, just shake their heads. Andersen has refused to comment, saying it's too early to reach conclusions. Enron has restated its earnings dating back to 1997 because it says JEDI should have been on its books since then. Guess what? The restated profits are far lower than the original ones.

Now, to the deals that sank Enron. As in JEDI, Enron won't comment. These transactions involve four companies called Raptor. It looks like the Raptors were set up to let Enron use financial gymnastics to get gains from stocks it owned without actually selling them. The major holdings were Rhythms Net Connections, a now bankrupt start-up telecom company, and NewPower Holdings, which competes with established power companies for customers. At their height, Enron's stake in these companies totaled about $2 billion. Friday's value: about $40 million. Enron won't say why it didn't just sell the stock and take its profits. The most logical explanation is tax avoidance.

Now, the key to Enron's undoing. The company committed to put $1.2 billion of Enron stock into the Raptors to make them more creditworthy. It didn't promise a fixed number of shares--it promised $1.2 billion worth, regardless of the share price. A seriously dumb move for a company that talks about hedging risks. In return for that commitment, the Raptors gave Enron $1.2 billion of promissory notes. Enron put them on its balance sheet as an asset. When a company adds to its assets and nothing else changes, its net worth rises. Hence, Enron marked up its net worth by $1.2 billion.

But as the stock prices of Rhythms, NewPower and Enron all sank, Enron faced having to fork over a ruinous number of new shares. So Enron paid $35 million to the Raptors' outside investors--yet another mysterious partnership--and liquidated the Raptors. That eliminated the notes, which eliminated the aforementioned $1.2 billion from Enron's net worth. That set off the now famous October run on Enron's credit, which ultimately led to bankruptcy. Now, far too late, Enron says it shouldn't have counted the notes as assets.

The bottom line: numbers matter. So does truth. Enron was too clever by half. And that's a good way to end up looking stupid.


The letter that the Enron executive Sherron S. Watkins sent to the chairman of the company provides a few new details about Enron's web of partnerships and raises the possibility that the company might have to reduce its past earnings by $1.3 billion more than it already has.

The letter discloses for the first time the existence of an entity called Condor, which was financed with Enron stock and which made investments that generated $800 million in cash for Enron. An industry expert who has studied the letter says there is a question about whether that $800 million should be deducted from earnings.

The letter also says that another entity, Raptor, a previously disclosed investment vehicle owned by another Enron partnership, generated $500 million in revenue. Enron does not appear to have written that off either, but may have to do so.

Because so much remains unknown about the partnerships, Ms. Watkins's letter is being widely parsed for information about deals between Enron and related parties and for signposts to future, possibly damaging disclosures about the company. The letter, written last August, was released on Tuesday by a Congressional subcommittee that is investigating Enron.

Robert F. McCullough, a principal in McCullough Research, a utility industry consulting firm in Portland, Ore., has studied the letter closely. Though much of it concerns the close ties between Enron and partnerships that had not been disclosed to shareholders until recently, he said that what is new are the references to the $500 million generated to Enron by Raptor and the $800 million generated to Enron by Condor. Neither amount appears to have been identified by the company or noted in its restated financial statements for the quarter ended in September.

''We've now learned something that goes beyond what we knew from the quarterly,'' Mr. McCullough said. ''And in terms of analysis it's more important to me that we now have the possibility that there's $1.3 billion of additional income statement items that may need to be removed before we get to the bottom of this.''

Getting to the bottom of Enron's 3,000 or so partnerships and subsidiaries, nearly 900 of which are offshore, will not be easy. What is known is that the dealings between Enron and the various partnerships were not conducted at arm's length, as the company contended until questions arose last fall. In some partnerships, Enron's shareholders were responsible for partnership debts even though they did not benefit from the entities.

As questions about the partnerships grew last fall, Enron was forced to concede that the partnership results should in fact have been included in the company's financial statements. So in its third-quarter filing with regulators, Enron consolidated the results of several partnerships, including those known as JEDI and Chewco, into its own statements, deducting $1.2 billion from its net worth and wiping out $586 million in profits over the previous five years. The company also wrote off more than $1 billion worth of failed investments in water companies, broadband trading and retail electricity sales. The disclosures prompted the loss of confidence in Enron that sealed its fate and led to its filing for bankruptcy.

A phone call late yesterday to Mark Palmer, an Enron spokesman, seeking comment about these issues was not returned.

For anyone trying to digest fully the role that the partnerships played in Enron's demise, the Watkins letter is only a tantalizing tidbit. The letter shed light on investments made within Raptor, a company that is owned by LJM2, one of the partnerships that Enron consolidated in its financial statements last fall.

Ms. Watkins's letter displayed a firm grasp of the arcana of accounting. She came to Enron eight years ago from the accounting firm of Arthur Andersen. Andersen is Enron's auditor, and the partner at the firm who oversaw the Enron account has been fired for directing the destruction of documents relating to Enron's financial statements.

Raptor, which was financed and backed by Enron shares, appears to have been a vehicle that invested in publicly traded stocks. The partnership had holdings in Avici Systems, a troubled maker of high-speed data networking equipment that Enron bought equipment from; Hanover, a gas equipment company; and the New Power Company, an Enron subsidiary.

Early on, as Ms. Watkins's letter pointed out, these investments rose in value, throwing off $500 million in revenue in 2000. But by early 2001, the value of the investments had plummeted, and the collateral backing them -- Enron shares -- began to fall, too. This gave Enron an unpleasant choice. It had to put up more collateral to shore up the partnership's holdings, or it had to reflect the lower value of the portfolio in its financial statements. Raptor wound up costing Enron $1 billion, which it wrote off in the third quarter last year.

In her letter, Ms. Watkins recapped the events surrounding the Raptor transactions and foreshadowed the losses there that Enron owned up to a little more than a month after Ms. Watkins sent her letter. ''Raptor looks to be a big bet,'' Ms. Watkins wrote. ''If the underlying stocks did well, then no one would be the wiser. If Enron stock did well, the stock issuance to these entities would decline, and the transactions would be less noticeable. All has gone against us.''

Mr. McCullough said that the $500 million in revenue that Enron booked from Raptor in 2000 had not been mentioned in the company's quarterly filing as part of its adjustments involving Raptor. ''Nowhere in the quarterly does Enron unwrap any income statement items pertaining to Raptor,'' Mr. McCullough said. These gains may have offset losses elsewhere and therefore were not identified by Enron, but it is also possible, he said, that Raptor could produce another downward adjustment to income of $500 million at Enron.

The new entity identified by Ms. Watkins as Condor produces additional concerns. In the letter she wrote: ''To the layman on the street it will look like we recognized funds flow of $800 mm [million] from merchant asset sales in 1999 by selling to a vehicle (Condor) that we capitalized with a promise of Enron stock in later years.'' Then, Ms. Watkins questioned the company's recognition of that $800 million as cash flow, noting that it might be more accurate to consider it cash received in exchange for issuance of company shares.

''Condor has not surfaced elsewhere in Enron's financial statements,'' Mr. McCullough said. ''Over all, Condor would seem to be a concern in addition to those recognized by Enron in the third quarter 10-Q,'' he said, referring to an S.E.C. form. ''This leaves open a possibility that the $800 million is an additional issue to be unwrapped.''

Through her lawyer, Ms. Watkins, a vice president for corporate development at Enron, has declined to comment further on her letter.

The letter was remarkable for its odd combination of clear respect for a superior and decidedly straight talk. It is addressed to the chairman, Kenneth L. Lay, suggesting that Ms. Watkins was far down the management pecking order and had had little interaction with him. Yet her tone was also aggressive at times. ''Employees question our accounting propriety consistently and constantly,'' she wrote. ''This alone is cause for concern.''

Mr. McCullough said the letter showed both courage and a command of Enron's financial statements. ''That is a career-ending letter in most contexts,'' he said. ''Her language may not be clear, but she has a lot more detail than we've seen out of Enron.''

Chart: ''Raising Questions About Enron's Accounting''

In her letter to Kenneth L. Lay, Enron's chairman, last August, Sherron S. Watkins said that Enron's accounting for transactions with two partnerships named Raptor and Condor, each created by Enron, would not stand up to scrutiny. Here are the transactions she questioned.

Deal With Raptor


Enron wanted to buy and sell stocks of other companies. But the risk was that the value of those stock investments could decline.


Executives at Enron created a partnership called Raptor.

To give Raptor money to operate, Enron lent the partnership $500 million in Enron stock. Raptor issued a note to Enron that Enron considered an asset.

Enron also guaranteed the loan by promising to give Raptor more stock if Raptor was unable to repay the loan.

Raptor then bought stock in companies like Avici, a maker of high-speed net-working equipment, and the New Power Company.


The loan to Raptor was treated as an asset. Enron claimed a profit of $500 million on the rising value of Raptor's holdings in 2000.


This transaction worked as long as the stocks of the companies owned by Raptor held their value. But the stock prices of those companies plummeted, leaving Raptor with no way to repay its loan to Enron.

As the guarantor of the loan, Enron was obligated to issue more stock to prop up Raptor. Worse, as Enron's own stock declined, it had to issue more and more shares to cover the loan to Raptor.

Deal With Condor


Sale of assets at best possible price.


Executives at Enron created a partnership called Condor.

To give Condor money to buy assets from Enron, Enron lent the partnership shares of Enron's stock.


Enron recognized $800 million in cash flow from Condor.


Because Enron got Condor up and running using Enron shares, the $800 million that Enron counted as cash flow should instead have been accounted for as an issuance of stock. (pg. C9)

Question 2: ii. "I am incredibly nervous that we will implode in a wave of accounting scandals."

What accounting scandals was Watkins referring to here? List the questionable and/or fraudulent accounting practices Enron was engaged in. What were the effects of such practices on the reported results of Enron? (12 marks) (Around 700 words)

Sherron Watkins born August 28, 1959) was Vice President of Corporate Development at the Enron Corporation. She is considered by many to be the whistleblower who helped to uncover the Enron scandal in 2001.

It has been remarked that her actions cannot be considered whistleblowing in a strict sense, because she only wrote a concerned internal email message to Enron CEO Kenneth Laywarning him of potential whistleblowers in the company and pointing out that there were misstatements in the financial reports. Her memo did not reach the public until five months after it was written.

Watkins according to me was the hero, he was the person who found out all the fraud done in the financial statement........ he was recently appointed as CEO of the company before he was working as COO in the same company......

As we learned in theory of acct abt the volatile market which are not stable....... Watkins questioned how can ENRON mainted a consistent stock market price for such a long time........ he looked at the financial statement......... and found that the actual share price which should be $30........ has the value of $90 in the market............. and this was all beacue every thing was created virtually................ thee were no expense inthe company all the expenses were used as capatilsation.... due to which there share price increases......... any breakage of deal was never indiacted instead it remained as an asset for the compnay..........


The above was the over view....... u can find more info....... i shared the things which i learned uptill now........ we need to format our answers as below....

Discuss the scandals stated by Watkins

Fraud accouting Practice by Enron

Effect of this fraud Effect (answer for this is there share value drop from $ 90 to only for 10cents and they got bank crupt) andmany more effect s

Sherron S. Watkins was vice president of Enron. It was her duty to look rapter and condor SPEs( actually partnerships) work.

finding frauds in these 2 dealings and no chance of escape, she worte letters to Ley but she was threanted to dismiss and leters were kept hidden. 


A company may record gains and losses on transactions with the SPE; however the assets and liabilities of the SPE are not included in the company's balance sheet. Enron executives structured the deals so that losses would not show up as earning's losses, but instead as reductions of shareholder equity that had no effect on the income and earnings statements. There are several structures used by Enron for its accounting practices. One of them was to use SPEs to sell ¨financial assets¨ (a debt or equity owned by Enron) at the end of a financial accounting period in order to improve their financial ratios and standing. The secret contracts between Enron and the SPEs gave Enron the right to buy shares of the SPEs. This ensured Enron control of the SPEs.

Mark-to-market accounting strategy:

Enron had implemented the Mark-to-market accounting strategy. It is the accounting strategy that, the price or value of a security is recorded on a daily basis to calculate profits and losses. Enron counted the projected earnings from long-term energy contracts as current income, but it not did not reflect the true economic value. All the income was estimated as the present value of net future cash flows. Mark to market strategy counted the future income as current income that increased the financial earnings however in future years; the profits could not be included. To keep the business growth and the investor's Trust over the business, company should include additional income from its new project at any way. So Enron did it through its SPEs.

Capital stock transaction

The transaction of issue of share by company should not ordinarily be recorded an increased to stock holders' equity until cash payment for the share is received. Enron issued share to its SPEs in exchange for notes receivable. That accounting treatment only overstated the notes receivable and share holder's equity. Enron used its own common stock to capitalise SPEs.

Revenue recognition

Enron recognised mostly from long term contracts where the value of the contract was determined based on subjective mark to market (MTM) strategy. It did not compute the fair value of a financial instrument when there was no active market for it. Furthermore Enron recognised revenue arising from an increase in the value of its own share using the equity method of accounting.

Recognizing increases in the value of Enron's common stocks

Enron had had partnership with its SPEs. Enron had given partnership shares to those SPEs. One of them ZEDI held 12 million share of Enron stock, which was carried at fair market value. Increased in the fare value of those share prices, Enron recorded it as income using equity method. But Enron did not recorded losses while ZEDI shares declined. That means Enron was recognising the increasing value of its own shares as revenue but losses were not.

Accounting disclosure

The accounting and the financial disclosure that Enron had made was not adequate. Especially contracts that made with its SPEs, there was no systematic Procedure that could define about transaction made with related parties. Enron entered into a series of involving a third party LJM in June 1999, but the e effect of the transaction was not clearly disclosed to its investors, employees and other stakeholders.

Question 3:

iii. "The overriding basic principle of accounting is that if you explain the 'accounting treatment' to a man in the street, would you influence his investing decisions? Would he sell or buy the stock based on a thorough understanding of the facts? If so, you best present it correctly and/or change the accounting. My concern is that the footnotes don't adequately explain the transactions" What is the context of this comment by Watkins? Why footnotes do not adequately explain transactions? (6 marks) (Around 350 words)

Watking who is my hero...... again points out one more thing "FOOT NOTES" actually its not easy to understand all the transaction in the accounting for all the accountants as well...... so we always use footnotes to explain how the above transaction was carried out.............. but ENRON footnotes did not explain anything adequatley..... which is picked by Watkins......... and the main reason foot notes was not explain correctly....... beacuse of the fake .... creation of all the transaction which did not had any value...... this is what we need to explain while answering this question.......


On the email of Watkins to Lay, she commented that the footnote made on the transaction was not adequate and did not give proper information to its related parties. Especially the transaction made with SPEs (Raptor, ZEDI), it was not appropriate and transparent. The footnotes did not explain properly about what transaction made with those SPEs, what the effect behind the transactions and so many other accounting and financing terms. If those terms are properly explained then, investors would know that the entities that Enron holding are thinly capitalised. Furthermore they would know all the value in the SPEs come from the underlying value of the derivatives and Enron stock.

But the footnotes disclosures of above transactions at consolidated statements were vague and difficult to understand. The Enron financial statement disclosure did not tell everything about the transaction that was made with its SPEs. The substance of the transactions that Enron entered into was difficult to distinguish from the footnotes to the financial statements, and since only the form of the transactions was reflected on the face of the financial statements, it was difficult for investors and creditors to obtain a clear view of the financial position and results of operations of Enron.

Question 4:

Watkin's memo refers to Arthur Anderson & Co (AA) at several places. How was their role as auditors of the company? Critically explain. 5 Marks (Around 300 words)

(Arthur Anderson & his company was actually the auditor of the ENRON........ and he used to get $ 50million in a year..... to make all the fraud reports in correct order........

What Arthur Anderson did that he sacked some of his good auditors purposly ..... and then these auditors were hired by ENRON........ all according to Plan...... so outside media does not know anything........... all the auditors which were now in ENRON worked according to instructions of Arthur Anderson........ and that was it....... ENRON never had a problem in financial statements as they all were in the same boat..............

this is wat we need to explain inthis question.........)


Arthur Anderson & Co (AA) was not only the auditor of Enron; it provided consulting services as well. Arthur Anderson & Co was paid $ 52m including &27m for consulting and rest for auditing in 2000 by Enron. Arthur Andersen became so reliant on the combined service revenues of these clients that they discredited the fundamental principles of the accounting/auditing profession. The relationship between Enron and Andersen developed so much that Enron were able to overstate revenue by close to $600 million over a number of years, before its collapse in December 2001. Andersen did not fulfil 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 (or the Audit and Compliance Committee) concerns about Enron's internal contracts over the related-party transactions".[4]

On June 15, 2002, Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron, resulting in the Enron scandal. Nancy Temple (Andersen Legal Dept.) and David Duncan (Lead Partner for the Enron account) were cited as the responsible managers in this scandal as they had given the order to shred relevant documents.

Critics suggest that Enron's collapse was backed up because auditor Arthur Andersen was earning as much from consulting as from auditing. They believe this factor created an incentive not to challenge the energy company's financial statements (Drinkard, 2002). Barefoot (2002) also agrees that the auditor's independence was compromised. However, Barefoot (2002) also argues that the Board of Directors set aside the company's own ethics policy in order to permit the questionable financial transactions. She states that legal and compliance problems almost never arise unless senior executives have tolerated, and even created a climate in which noncompliance can occur. While critics believed that a conflict of interest was a major contributing factor to the disaster,. So while the public are pointing the finger of blame at Arthur Andersen, the experts are implying that Enron's senior executives should have been pointed as harshly.


(200 words)

There are quite a number of lessons that can be learned from Enron to prevent these scandals from happening. Firstly, ethical cultures must be well-fortified so that among employees, customers, suppliers and investors will have higher degrees of satisfaction and loyalty. Ethics must be looked from both moral-rights and justice views. In organizations, this concept that includes the right of employees to reject unethical actions must be practiced. This is to ensure that employees are always protected in rights of privacy, choices, health and safety. Besides that, we must treat people impartially and fairly, according to legal rules and standards. Procedural justice must also be applied so that policies and rules of the organization are fairly administered.

Next, the second lesson learned from Enron's failure is stricter rules must be enforced and imposed on companies so everything can stay in order. Certain techniques to do so include creating comprehensive policies around corporate governance, devising systems to share data across compliance documents to avoid duplication of work, such as finance sheets, establishing clear lines of responsibility so that both employers and employees know what is their area of responsibilities, and making those processes part of a company's culture. These broad guidelines can help ensure that scandals such as Enron's would not happen again .

Besides that, lessons that can be learned form Enron's failure is to be careful on making the right or wrong choice, as there is always a first intentional misstep. This first misstep often involves a small transgression, but none are more important; because this small compromise or minimal transgression will almost always lead to worse conduct. Once you step over the line, it is difficult to go back to the right course. In Enron, because a manager made a bad decision, so he tries to cover it up. In fact, he should try to solve that problem critically, whether it is tax frauds or corporate offenses, otherwise, after the first misstep, it always gets easier and easier to continue these misconduct.

Finally, the lessons that can be learned form Enron's failure is learn to be satisfied with what you have legitimately earned, as greed is a vicious vice that can destroy you. If you judge success in life by what you can accumulate, you will never be fully content, as someone will always have more, your children or others will always want more from you, and therefore, you will never have enough. It is in the human nature to be greedy, but not until you have to take illegal actions to earn it. Consider this example, managers in Enron such as Jeffrey Skilling wanted to make more money and at the end, they received their punishments. Skilling was sentenced to 24 years in prison in October 23, 2006 .

In conclusion, we must do everything in all cost to prevent from these things to happen again, so that there will be no unethical management to be practiced again.