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Write 3 page essay on the topic Breach of Professional Accounting Ethics.Enron Corporation was an energy company established in 1985 with headquarters in Houston, Texas. To diversify its business port
Write 3 page essay on the topic Breach of Professional Accounting Ethics.
Enron Corporation was an energy company established in 1985 with headquarters in Houston, Texas. To diversify its business portfolio for long-term investments, it had created Special Purpose Entities (SPEs). According to the EITF 90-15 rule, 3% of the capital for the creation of these SPEs should come from an outside investor. Enron Corporation misused the rule and received the required amount from internal company managers or their wives. The Auditor of the Corporation- Arthur Andersen, in order to remain loyal to the company executives and remain an ‘independent auditor’, provided consultancy to the Corporation and provided misleading and incorrect details of financial audits of the Corporation, which ultimately lead to the Company filing bankruptcy in December 2001, due to millions of debts concealed from stakeholders (Rittenberg et al, 2009, p. 427). The platform for the bankruptcy of Enron was set when its top managers and executives bent the accounting standards for their personal gains. In order to diversify its business portfolio, Enron took a fatal turn by deciding to be an energy broker. For this purpose, it started entering into separate contracts with sellers and buyers, thereby profiting from the difference in the prices of the commodities. Keeping its books closed from investors and stakeholders, Enron entered into risky ventures and the accomplice, in this case, was the auditing firm- Arthur Andersen, who concealed the actual position and standing of the Corporation from the outside world. Later on when the differences were tried to be matched, Enron posted mammoth losses running into billions of marks, which spelled demise for it.
The Enron scandal is considered to be one of the biggest securities and accounting ethics fraud registered in history. The Securities and Exchange Commission (SEC) was handled the responsibility to examine thecompanies in overstating their financial health.
