Fraud Accounting and Enron Essay

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Particulars of Enron's Bankruptcy

There were a number of specific actions that led to Enron's bankruptcy. The majority of these pertain to a lack of accountability on the part of numerous people in key positions at this firm. The individual accountants at Arthur Andersen, the now defunct accounting firm that worked for this company, allowed Enron to utilize dubious accounting practices without trying to curtail them. Upper level management was guilty of allowing such accounting practices to take place, and of being too concerned with acquisition and spending to ensure the company was operating in accordance with the standards provided by the Securities Exchange Commission. Several fraudulent activities also contributed to Enron's bankruptcy. These include the insider trading that took place, the misrepresentation of the company as financially viable when it was on the verge of bankruptcy, and many others.

One of the primary accounting and auditing practices that eventually contributed to the fraud performed by Enron was its usage of marked to market accounting. This form of accounting is effective in tenuous situations in which the market value of assets can determine their value more readily than conventional methods can. However, Enron used this method for all of its accounting purposes after getting permission to use it for one particular use case. The result was inflated profits in instances in which it actually saw no revenue.

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Additionally, Enron allowed virtually no transparency of its balance sheet (Emshwiller, 2001), even for employees and industry insiders who were supposed to be privy to it.

The ethical environment that led to fraud at Enron was one in which success was desired at all costs. The only ethics in place at this company was the ethics of gain, profit, and dollars -- regardless of how they were earned or even if they were earned. It is also worth mentioning that there is a direct correlation between such an unethical environment and the numerous fraudulent practices in which Enron engaged. Specifically, Enron was able to set up numerous puppet corporations which primarily existed on paper (and which were under the names of its various employees) to transfer its debt (Cross and Kunkel, n.d.). As a result, its own balance sheet reflected erroneous information. Such practices are extremely unethical for most industries, and especially for the accounting of a publicly traded company in which there are potentially millions of shareholders.

Enron's bankruptcy impacted the financial….....

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