In this assignment I will talk about the corporate ethical breaches in recent times, assess whether or not I believe that the current business and regulatory environment is more conducive to ethical behavior. I will also talk about the accounting ethical breach of The Enron Corporation and the impact to the organization related to ethical breach. Then I will determine how the organizational ethical issue was detected and how management failed to create an ethical environment. After, I will analyze the accounting guidelines violated and the resulting impact to the business operation. Lastly, I will recommend which measures could have been taken to prevent this ethical breach and how each measure should be implemented in the future.
Given the corporate ethical breaches in recent times, assess whether or not you believe that the current business and regulatory environment is more conducive to ethical behavior. Provide support for your answer.
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Given the corporate ethical breaches in recent times, I do believe that the current business and regulatory environment is more conducive to ethical behavior. Considering the evolution of the Sarbanes-Oxley Act, I believe businesses are less prone to ethical and accounting breaches. The Sarbanes Oxley Act helps ensure a company's successful audit and management. Through periodic statutory financial reports, the Sox Framework ensures reliable and complete financial information. The reports do not contain any untrue statements or material that could be considered misleading therefore avoiding any accounting scandals and conducing ethical behavior.
Based on your research, describe the organization, the accounting ethical breach and the impact to the organization related to ethical breach
The Enron Corporation was an energy company based out of Houston, Texas. Enron was formed in 1989 by Kenneth Lay. Enron being one of the world's most major natural gas and electric company employed nearly over 20,000 people worldwide. For a few consecutive years, Enron was very successful, however started to face some minor credit and revenue problems. Kenneth Lay reached out to banking and financing consultant, Jeffrey Skilling. Kenneth Lay was so impressed with Jeffrey Skilling's work that Lay later invited Skilling to work for the Company. Not long after, Jeffrey Skilling soon became the new president of the Enron Corporation. Soon after Jeffrey Skilling election as the Enron Corporation president, the multimillion dollar company shortly turned into an extravagant scam. Once president, Jeffrey Skilling began to scout and recruit the most sharpest and wise business individuals he could find to join his team (Raver, 2006). Jeffrey Skilling and his team continued to move the Enron Company to success however, Skilling developed a staff of executives that conducted poor financial reporting therefore hiding billions of dollars of the company's debt. When it came to certain financial reports, the team was not so honest. Although the company experienced huge success, it was noticed that financial reports were missing or consisted of false information. The Enron Corporation eventually went under investigation through The Securities and Exchange Commission. The rivalry of Enron, Houston competitor Dynegy, offered to purchase the company at a very low price. However, the deal failed. Because of Jeffrey Skilling and the executives decisions led to the downfall and bankruptcy of the company. As a result of this invasive scandal, thousands of skillful individuals were now jobless. To make things worse, majority of Enron's employees had their whole life savings invested in the company's stock, most of which was now worthless (Raver, 2006). Employees and shareholders who invested in the company received limited returns in lawsuits, despite losing billions in pensions and stock prices. Skilling and other executives were later convicted of multiple federal felony charges and sentenced to prison.
Determine how the organizational ethical issue was detected and how management failed to create an ethical environment.
The Enron Corporations had begun to see financial trouble. Enron employees began to resign from the company, leaving Enron at risk to fend for itself and support Raptor on its own. The Raptor deals were written such that Enron were only to support Raptor on their stock only. When Enron's stock fell from eighty-six dollars to thirty cents, the Raptors' losses would begin to appear on Enron's financial statements, which later lead to the investigation by The Securities and Exchange Commission. The Enron Corporation ethical issue was detected by the investigation of the Securities and Exchange Commission. Due to the Enron scandal, Jeffrey Skilling and his executive team failed to create an ethical environment by not providing any proper training to his employees and by influencing them to falsify the reports. Skilling and his team wrongfully mishandled the accounting books, creating a bad image for the company which dismayed the total ethical environment. Jeffrey Skilling failed to set principles of right conduct. If the accounting team would have been truthful with the financial documents and not put any misleading information in the books, the scam could have been avoided.
Analyze the accounts impacted and / or accounting guidelines violated and the resulting impact to the business operation.
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With the mishap of the Enron Corporation, many accounting guidelines were violated. Boundary, measurement, and ethical rules were broken. As far as the boundary and measurement rules, Enron failed to distinguish and bring to light the company's debt. Lastly, ethical rules were violated due to Enron not putting all of the relevant information on the financial documents. In result of the violated guidelines and broken rules, the Enron Corporation went bankrupt, employees lost their jobs, investors lost money, and executives were sentenced to prison.
As a CFO, recommend which measures could have been taken to prevent this ethical breach and how each measure should be implemented in the future.
When the Enron scandal occurred years ago, there was not much that could be done to prevent management of taking advantage of a company and preventing ethical breaches. However as a CFO, I would recommend hiring a third party company to overlook all financial reports and documents to ensure that no misleading information is being displayed. As the CFO, to prevent anything like this from happening, I would make it mandatory that all companies have a third party company to handle the financial reports. Luckily, now the Sarbanes-Oxley Act exists and it prevents any of this from happening in addition to preventing any accounting scandals from happening.
Although the Enron Corporation scandal impacted many lives in a negative way, Enron Corporation has played as an example for numerous companies. Many companies now follow proper accounting ethics by handling the books properly and making sure that all financial information is correct in the reports. Accounting ethics are very important to follow in order to have a successful business.