Case Study: Enron: Questionable Accounting Leads to Collapse 1.0 Introduction – Student should be able to do some research on the news and activities about Enron and its officers (shareholders) in the same period of time. The activities and shareholders information should be presented strictly pertaining to the ethical aspects (any year of information are accepted). Length: 125 words2.0 Examine the interest of stakeholders were negatively affected by a business and affect a business in the perspective of stakeholder theory – Student should be able to identify and explain all the issues related to stakeholders engagement and how they were affected negatively by applying stakeholder theory. Length: 500 words3.0 Evaluation of the Enron ethical practices aspects – Student should be able to identify the facts or evidence of Enron ethical business practices. The arguments and discussion should be presented with application of FIVE (5) ethical theories to criticize Enron’s business practices (any theories will do). Length: 1250 words (each application 250 words)4.0 Conclusion & Recommendations – Student should be able to propose FIVE (5) good and effective corporate governance practices that should be undertaken by the top management of Enron, which led by Chairman Ken Lay, from the very beginning of his leadership at Enron. Length: 500 words (each recommendation 125 words)5.0 References – APA format6.0 Appendices (enclose the evidences, if any)7.0 The similarity no more than 15%
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Case Study: Enron: Questionable Accounting Leads to Collapse
Once upon a time, there was a gleaming office tower in Houston, Texas. In front of that
gleaming tower was a giant “E”, slowly revolving, flashing in the hot Texas sun. But in
2001 the Enron Corporation, which once ranked among the top Fortune 500 companies,
collapsed under a mountain of debt concealed through a complex scheme of off-balancesheet partnerships. Forced to declare bankruptcy, the energy firm laid off 4,000
employees; thousands more lost their retirement savings that had been invested in Enron
stock. The company’s shareholders lost tens of billions of dollars after the stock price
plummeted. The scandal surrounding Enron’s demise engendered a global loss of
confidence in corporate integrity that continues to plague markets today, eventually it
triggered tough new scrutiny of financial reporting practices. In an attempt to explain what
went wrong, this case examines the history, culture, and major players in the Enron
scandal.
Throughout the 1990s, Chairman Ken Lay, CEO Jeffery Skilling and CFO Andrew
Fastow transformed Enron from an old-style electricity and gas company into a $150
billion energy company and Wall Street favorite that traded power contracts in the
investment markets. However, a bankruptcy examiner later reported that although Enron
claimed a net income of $979 million in 2000, it earned just $42 million. Moreover, the
examiner found that despite Enron’s claim of $3 billion in cash flow in 2000, the
company’s actual cash flow was negative $154 million. By misrepresenting earnings
reports while continuing to enjoy the revenue provided by the investors not privy to the
true financial condition of Enron, the executives of Enron embezzled funds funneling in
from investments while reporting fraudulent earnings to those investors; this not only
proliferated more investments from current stockholders, but also attracted new investors
desiring the enjoy the apparent financial gains enjoyed by the Enron corporation.
According to CFO Fastow, Enron established the “special-purpose entities” to move assets
and debt off its balance sheet add to increase cash flow by showing that funds were
flowing through its book when it sold assets. Although these practices produced a
favorable financial picture, outside observers believed they constituted fraudulent financial
reporting because they did not accurately represent the company’s true financial condition.
Most of the “special-purpose entities” were entities in name only, and Enron funded then
with its own stock and maintained control over them. When one of these partnerships was
unable to meet its obligation, Enron covered the debt with its own stock. This arrangement
worked as long as Enron’s stock price was high, but when the stock price fell, cash was
needed to meet the shortfall. After Enron restated its financial statements for fiscal year
2000 and the first nine months of 2001, its cash flow from operations went from a positive
$ 127 million in 2000 to negative $753 million in 2001. With its stock price falling, Enron
faced a critical cash shortage. Enron’s stockholder equity fell by $1.2 billion. Lay, the
chairman of Enron, was convicted on 19 counts of fraud, conspiracy and insider trading.
On December 2, 2001, Enron filed for bankruptcy and it was the largest in U.S. corporate
history at the time. Enron faced 22,000 claims totaling about $400 billion. Enron’s demise
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caused tens of billions of dollars of investor losses, triggered a collapse of electricitytrading markets, and ushered in an era of accounting scandals that precipitated a global
loss of confidence in corporate integrity.
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In its role as Enron’s auditor, Arthur Andersen was responsible for ensuring the accuracy
of Enron’s financial statements and internal bookkeeping. Investors used Andersen’s
reports to judge Enron’s financial soundness and future potential, and expected that
Andersen’s certifications of accuracy and application of proper accounting procedures
would be independent and free of any conflict of interest. In March 2002, Andersen was
found guilty of obstruction of justice for destroying relevant auditing documents during an
SEC investigation of Enron. As a result, Anderson was barred from performing audits.
The damage to the firm was such that the company no longer operates.
(Adapted from Ferrell, O.C., Fraedrich, J. & Ferrell, L. (2015). Business Ethics: Ethical
Decision Making and Cases, 10th Edition, Cengage Learning, USA).
Based on the case above, you are required to:1. Research some of the news and activities about Enron and its officers
(shareholders) in the same period of time. The information should strictly
pertaining to ethical aspects.
2. Examine the interest of stakeholders were negatively affected by a business and
affect a business in the perspective of stakeholder theory. Refer to Chapter 8.
3. Evaluate how “ethical” are the business practices of Enron and support your
justification by applying FIVE (5) ethical theories. Refer to all the chapters.
4. Propose FIVE (5) good and effective corporate governance practices that should
be undertaken by the top management of Enron, led by Chairman Ken Lay, from
the very beginning of his leadership at Enron. Refer to Chapter 7.
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•
格式
1.0 Introduction – Student should be able to do some research on the news and
activities about Enron and its officers (shareholders) in the same period of time.
The activities and shareholders information should be presented strictly pertaining
to the ethical aspects (any year of information are accepted). Length: 125 words
2.0 Examine the interest of stakeholders were negatively affected by a business
and affect a business in the perspective of stakeholder theory – Student should
be able to identify and explain all the issues related to stakeholders engagement
and how they were affected negatively by applying stakeholder theory. Length:
500 words
3.0 Evaluation of the Enron ethical practices aspects – Student should be able to
identify the facts or evidence of Enron ethical business practices. The arguments
and discussion should be presented with application of FIVE (5) ethical theories
to criticize Enron’s business practices (any theories will do). Length: 1250 words
(each application 250 words)
4.0 Conclusion & Recommendations – Student should be able to propose FIVE (5)
good and effective corporate governance practices that should be undertaken by
the top management of Enron, which led by Chairman Ken Lay, from the very
beginning of his leadership at Enron. Length: 500 words (each recommendation
125 words)
5.0 References – APA format
6.0 Appendices (enclose the evidences, if any)
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评分标准
Appendix 1: Marking Criteria for Case Study (50%)
No.
1.0
Assessment Criteria
Introduction – the activities and shareholders
Weightage
Marks
Allotted
by
Lecturer
5%
information
2.0
Stakeholder theory – the issues related to
20%
stakeholders’ engagement
3.0
Business practices – applying FIVE (5) ethical
50%
theories
4.0
Conclusion and Recommendations – FIVE (5)
25%
good and effective corporate governance practices
Others
Presentation of the analysis:
• Appropriate citation and references.
• Style and readability including proper
organization of answers.
• Overall presentation.
• This coursework must have a Cover Sheet,
Table of Content and Page Number and Proper
Heading/Title for each part answered, list of
references (APA Format)
Total marks
100%
Overall Marks
50%
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