As you know, Enron as well as many other major corporations have been in the new

Question

As you know, Enron as well as many other major corporations have been in the news Trequently over the past several years. The issues surrounding these companies are very serious and have affected many lives. In adddition, the accounting profession has received considerable negative publicity and is receiving pressure to change their regulatory structure. Your assignment is to discuss this situation and its implications. Specifically, you need to research and find a current article regarding Enron or another company and the multiple dilemmas surrounding their predicament. In addition, touch on the implication:s these "scandals" have on the accounting profession.

Explanation / Answer

Enron was an energy trader and supplier and one of the most valued companies in the 1990s. The company and its management, particularly its CEO Jeffery Skilling, hid financial losses of the company’s trading business by using an accounting technique called mark-to-market accounting. The company, after building an asset (like a power plant for instance), immediately booked projected profits on its income statement. Losses went unreported through the use of off-the-books corporation which was used for the purpose of transferring assets.

This practice led to mounting liabilities for Enron and in December 2001 Enron filed for bankruptcy. The dilemmas that surrounds the predicament of Enron and many other such companies who engaged in such malpractices starts with the dilemma of justifying and prioritizing profits over morality and fairness. The integrity capacity of managers were neglected at Enron. Integrity capacity is the capability (both individual as well as collective) with regards to moral alignment within an organization. There was no supportive system in Enron for moral decision making. The dilemmas are with regards to the predicament of not only the company’s primary stakeholders, but also their secondary and tertiary stakeholders.

Scandals like the Enron scandal have a significant negative impact on the accounting profession. In Enron’s case Arthur Anderson was guilty on several counts like violation of independence, conflict of interest, and most importantly failure of disclosure. Such scandals had soiled the accounting profession and had greatly diluted the faith of the public in accountants and firms like Arthur Anderson, E&Y, KPMG etc.

Article reference: Li Yuhao. (October 2010). The Case Analysis of the scandal of Enron. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.663.9418&rep=rep1&type=pdf

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