Business presentation

Enron Company

James Miles

September 28, 2014

ENRON COMPANY FRAUD

Based on the findings from milestone one, it is clear that Enron Company experienced an accounting fraud resulting in a spectacular bankruptcy. This was brought about by the accounting fraud made by the accounting firm. An accountant may face accounting dilemma of reporting any accounting violation to the financial accounting body of a company. It is an ethical duty for an accountant to report any such violations but also the dilemma arises on whether to report any uncertain mistake in the accounts. In the case of Enron Company the mistake was done by the accounting firm and the involved CEO was Jeff Skilling. According to legal and ethical issues of accounting fraud, government review of company financial records caused by an accounting scandal could cause the company’s rapid decline and can also lead to the layoff of thousands of employees and we can see from the Enron Company that it dropped its shares from $90 to $0.50 which brought loss to employees and a big financial loss to the investors who had saved their money in the Enron Company.

From the legal ethical issues, executives and other corporate officers can also face criminal prosecution, leading to heavy fines and prison time as seen from the case where the scandal resulted in penalty of CEO Jeff Skilling. Jeff Skilling was sent to prison for 24 years for engaging in accounting fraud for the financial collapse of the company. Arthur was not charged on accounting fraud but found guilty for fudging Enron’s account and to loss of shareholders. This results to loss of shares from the investors of the business.

Accounting fraud of Enron Company may have been brought by an officer in charge asking an accountant to omit or leave out a certain accounting figure from a balance sheet that may paint a business bad image to the public investors (Krishna, 2003). Omission may not seem like a significant breach of accounting ethics because it does not involve direct manipulating of numbers or records. This is why an accountant must remain ethically vigilant to avoid falling into a mess. Enron’s might have modeled unethical practices to misrepresent earnings and modify the balance sheet to indicate favorable performance. Combination of these issues resulted in the bankruptcy of the company and most of them were driven by the indirect knowledge or direct fraud actions.

Analysis of Enron Company also indicates that pressure from management cans also results to an accounting fraud. The urge of a company to succeed at higher levels may bring stress and pressure on accountants creating a balance sheet and financial statements. The ethical issues for accountants becomes maintaining true reporting of company assets, profits and liabilities without taking into account the pressure placed on them by the CEO or senior executives officers (McLean, 1998). Unethical accountants could easily alter company financial records and figures and paint wrong image of the business success. This may lead to short-term prosperity and any altered financial records will be the beginning of the downfall of a company like Enron.

In order to prevent these issues never to happen again in a company, certain laws and regulations must be put in place to prevent accounting fraud (Jonathan, 2014). First a company should use a system of checks and balances to ensure no one person has control over all parts of a financial transaction. This can be made possible by requiring purchases, payroll and disbursements to be authorized by a specific designated person. Separating handling functions from record keeping functions to help in coming up with a reliable system of handling the records of the accounts of the company.

Protection of checks against fraudulent users is also important in order to prevent writing checks payable to cash. Signing of checks only when all required information is entered on them and attached with the supporting documents also limits any incidents of frauds in accounts not forgetting to make sure that checks are to be signed by two signatures above a specified limit.

Considering of annual audits is a legal requirement that will discover all fraud within an organization. It gives an opportunity for someone to be selected to overview all transactions of the business to make sure all funds are being used in the right place. It also motivates all book keeping related issues in order for things to be honest. A business can never be sure what question an auditor is going to ask or what documents an auditor may request to look at it and review it.

REFERENCE

Healy Paul M: Krishna G Palebu (Spring 2003), The Fall of Enron Company (PDF). Journal of Economic perspective.

McLean Bethany (1998): Peter Elkind: The smartest Guys in The Room: Accounting fraud scandals. Pp. 179-180. Accessed on 27th September 2014.

Jonathan Lister (2014). Ethical Issues Facing the Accounting Profession, Hearst newspapers journal. Accessed on 27th September 2014.