Research Paper – Enron and Ethics in Financial Reporting
Table of Contents
Cover Page – Page 1
Table of Contents – Page 2
Introduction – Page 3
Statement of Problem – Pages 4-5
Analysis of Problem – Pages 5-6
Conclusion – Pages 6-7
References – Page 8
A major scandal that still resonates in financial markets today was Enron’s bankruptcy. The business environment of the time included a deregulated energy market (specifically in California) that allowed Enron to inflate their stock prices and offer their commodities at a premium. Additionally, there was little oversight for off balance-sheet transactions. This allowed ...view middle of the document...
Analysis of Problem
A year before the Enron scandal broke out, analyst Daniel Scotto had changed the buy recommendation of Enron to ‘Neutral’ (Telegraph). For this ethical change, he was removed from his firm. According to the Telegraph, Enron had a history of “providing huge fees to investment banks and complaining bitterly about any negative coverage” which meant investment analysts working for these banks were under pressure to not make accurate recommendations – violates the ethical tenet of integrity upheld by the philosophy of Universalism - being that this is deception by omission. Egoism was clearly the philosophy held by the leadership of Enron. They disregarded the futures and well-being of their 21,000 employees and abused the trust of investors. The root cause of this ethical failure was greed. While the leadership of Enron was advising investors to purchase company stock, they were themselves selling off their stock for millions in profit due to the pending release of their actual profits – an event that inevitably led to the drastic decline in stock prices (USA Today).
In the wake of the disclosure of Enron’s deceptive practices, many of the company’s top officials were charged with federal crimes. CFO Andrew Fastow was arrested on charges to include: fraud, money laundering, and conspiracy. Fastow’s aide, Michael Kopper, plead guilty to money laundering and conspiracy. Enron’s treasurer, Ben Glisan Jr., plead guilty to conspiracy to commit fraud. Additionally, eleven other top executives were indicted for their role in the massive accounting fraud committed by the company (NY Times).
The ethical breaches and crimes that Enron perpetrated on the public damaged the market as a whole as investors lost faith in the securities market. This scandal was also one of the leading factors in the dissolution of the accounting firm Arthur Anderson due to their aide in the accounting fraud that allowed Enron to keep up their unethical charade (BBC).
The company leaders of Enron should have reported actual profits and loss. This would have allowed investors to make decisions based on accurate information....