Assignment 1

Part a

RESEARCH ON

ECONOMIC DOWNFALL OF ENRON Introduction

Research based on the the how the Enron scandal occurs .What are the issues which become a cause a such an enormous economic disaster , Who is responsible for Enron Scandal and What are the features which keep in dark to misinterpret stake holders

Significance of Problem
The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five larges audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure .

Analysis
Enrons non transparent financial statements , Complex business Model , Unethical practices and Creative accounting to misrepresents earnings and modify statement of financial position to portray a favorable depiction of its performance. The combination of these issues later led to bankruptcy of the company

Evaluation
Revenue recognition is main tool that an Enron's Directors use in order to overstate company profit and assets .Between 1996 to 2000 Enron's revenues increased by more than 750%. This extensive expansion of 65% per year was unprecedented in any industry including energy industry which typically considered growth of 2-3%. Secondly Enron continued to recognize future profit even though the loss occurs . In July 2000, a contract between Enron and Blockbuster Video incurred a loss . However Enron recognized estimated profits of more than $110 million from the deal. Thirdly Enron built an Special purpose entities in which they put all of its losses.

Code of Ethics
Healy and Palepu write that a well-functioning capital market "creates appropriate linkages of information, incentives, and governance between managers and investors. This process is supposed to be carried out through a network of intermediaries that include assurance professionals such as external auditors named as Arthur Anderson fifth largest audit firm at that time ; and internal governance agents such as corporate boards.

This all happened because nobody follow their code of ethics . Arthur Anderson provide Enron a true and fair audit report because almost about 80% of the revenue is generated through the audit and other services provided to Enron . This impaired audit firm's objectivity and independence . According to the code of ethics not more than of 20% of revenue of the audit firm from the one client Investors never questioned for unprecedented increase in profits and transparency of financial accounts. They just attracted towards large sum of capital A large sums of capital to fund a questionable business model, conceal its true performance through a series of accounting and financing maneuvers, and hype its stock to unsustainable levels

Gantt Chart

Conclusion
We have broken down the key lessons from Enron into the following categories: 1. Corporate directors as fiduciaries; 2. Plan committee members as fiduciaries; 3. The duty to monitor fiduciary appointees prudently; 4. The duty to monitor investments prudently; and 5. Section 404(c) compliance and the responsibility of fiduciaries for participant investment decisions.

References

Peter Elkind (2003).The Smartest Guys in the Room. New York: Portfolio McLean Bethany Trade. Dharan, Bala G.; William R. Bufkins (2004) (PDF). Enron: Corporate Fiascos and Their Implications. After Enron by William A. Niskanen Part b I choose it because its a biggest audit failure which become the base of making Corporate Governance guidelines compulsory to follow by every listed company . This event changes investors vision . Now they encourage more towards the company which is more transparent Part c After Enron addresses the major lessons about accounting, auditing, taxation, and corporate governance that are illustrated by the collapse of Enron and other recent major corporate scandals . It develops a set of proposals for changes in public policy that would lead accountants, bankers, board members, lawyers, and corporate managers to better serve the interests of the general public

ASSIGNMENT NO 2 LITERARY VIEW

Enron became one of America's most admired companies, and a perennial favorite on "best places to work" lists (Sloan, 2002). Then suddenly without any warning Enron went bankrupt . Each year an auditor true and fair view in audit report. This means auditors supposed to eye on its finances and company was maintaining its financial statements according to IAS .Then how seventh largest company in the U.S. Collapsed without any warning ? Its a biggest question on auditors independence and objectivity because without their cooperation its not possible to undertake the biggest bankruptcy in American history Some top level executives made (up) their numbers, took millions of dollars in compensation, and walked out the door leaving Enron with numerous projects that in

reality were losing money (Prentice, 2003) How the projects who made losses in reality become extreme profitable . This all occur through creative accounting which creates appropriate linkages of information, incentives, and governance between managers and investors. This process is supposed to be carried out through a network of intermediaries that include assurance professionals such as external auditors named as Arthur Anderson fifth largest audit firm at that time ; and internal governance agents such as corporate boards. Unfortunately all stake holders except management are badly effected even destroyed . Thousand of Enron workers lost their jobs which suddenly increases the unemployment level in U.S. As well as have a negative impact on economy and capital market . Enron downfall teaches stakeholder to give more concentration over the transparency of accountancy policies as well as ensure that management are performing their duties in an effective manner and in the long term interest of the company . This is possible only when company follows the corporate governance guidelines strictly In spite of Enron's commitment to ethics and apparent attention to compliance controls, its actual ethical performance seems to have fallen far short of its proclaimed ethical goals. Many actions have been reported in the press indicating that Enron's behavior was widely at variance with its stated values and code of conduct. This may be due to the lack of effectiveness of Enron's ethics management system (Verschoor, 2002). The main cause of failure Inspite of Enron's commitment to ethics and apparent attention to compliance controls, its actual ethical performance seems to have fallen far short of its proclaimed ethical goals. Many actions have been reported in the press indicating that Enron's behavior was widely at variance with its stated values and code of conduct. This may be due to the lack of effectiveness of Enron's ethics management system (Verschoor, 2002). The roots of Enron's fall was its leaders ignorance and then denied serious problem with their business transactions and were more concerned about their personal financial rewards than those of the company

Solutions
1. Their should be a periodic checks on all employees including management 2. An effective ethics management strategies should be employed . 3. They should have had the support of the Ethics Officer Association All these measures could at least minimize the chances for such scandals.

REFERENCES

Megone, C. & Robinson, S.J. (2002). Case Histories in Business Ethics. Routledge. Prentice, R. (2003). Enron: A Brief Behavioral Autopsy. American Business Law

Part e Both describe the same issue but in different ways . In my opinion report is in organized way however literature review is just a discussion over the issue