Unethical Business Practices: The Enron Scandal Report Samples

Type of paper: Report

Topic: Company, Enron, Corporation, Business, Finance, Information, Entrepreneurship, Commerce

Pages: 4

Words: 1100

Published: 2020/11/19

The essay reviews the Enron Scandal that pertains to the unethical practices that led to the collapse of the corporation. Enron was a corporation that was involved in the production of gas in America. After tremendous success, the corporation adopted the diversification strategy that involved the ownership of various diverse assets such as paper plants, electricity plants and broadband services. The company collapsed when Jeffrey Skilling was C.E.O. Jeffrey worked with his executives to conceal the billion dollar-worth financial losses and debts that were acquired from failed projects and deals . As a result, the corporation was involved in accounting practices that exposed it to high risks. Jeffrey and his executives even influenced the audit company, Arthur Andersen, to overlook the potholes and risky practices. When the shares of the company fell by almost 100% between 2000 and 2001, the shareholders filed a lawsuit against the corporation that was worth $ 40 billion. The company filed for bankruptcy under the United Stated Act Code of Bankruptcy, chapter 11.
Many executives went down after the scandal whereby some were sentenced to jail term and others fined. The shareholders underwent great losses which they were unable to fully recover from the lawsuit. In response to the scandal and the effect it had on the people that were associated with the company in any way, there was introduced a legislation, the Sarbanes-Oxley Act that stated an increase in the penalties of dealing with cases of altering the evidence necessary for federal investigations and defrauding stakeholders.

Unethical Practices taken on by Enron

Enron is regarded as the world’s greatest audit failure in the history of American companies because of the audit and accounting frauds that were committed in the course of its operation. The unethical practices of the company were revealed in 2001 when the stock prices of the shares of the company dropped by almost 100% within a span of less than a year. The financial reports that were presented to the shareholders and the sudden decline of the share worth were not compatible and as a result, the shareholders of Enron filed a lawsuit against the corporation. The lawsuit was worth $ 40 billion. This was the starting point of the downfall of Enron. At this point, Dynergy, a competitor of Enron offered to purchase the company but it did not succeed. Investigations on the company were initiated and the company filed for bankruptcy in 2nd December, 2002. It was the largest company to file for bankruptcy in America at that time. The company did not go down alone. It also saw Arthur Andersen dissolved because of the collusion of the partnership in overlooking the accounting mishaps and hiding them from the stakeholders. The two companies breached the ethics of conduct of transparency in all dealings .
One of the reasons for the downfall of Enron was the practice of market-to-market accounting. This method required the company to. The method contained the estimation of the income of a contract based on the present value. The company was big and in conducted million-dollar contracts and partnerships. As a result, estimating the viability of those contracts was difficult, and the approximation of the costs that they were expected to incur impossible to state with accuracy. Matching the profits and the cash of the company was not possible and the shareholders were, therefore, presented with inaccurate reports. The United States Security and Exchange commission approved of the system used by Enron. However, Enron got a bit too ambitious whereby it extended the style to other areas of the business. One such contract was that between Enron and Blockbuster video. The projections of Enron using the market-to-market approach showed that the company would make more than $ 110 million in profits from the deal. It was signed to go for twenty years. However, Blockbuster video withdrew and the result was a loss on the part of Enron. To hide this, Enron continued to include the future profits in the balance sheets. Such was a misrepresentation and relay of false information to the shareholders.
Enron was also involved in the use of special purpose entities to conceal its debts from the public. The result was the overstatement of the company’s equity and the understatement of its liabilities.
The audit firm, Arthur Andersen faced its downfall when it failed to report the fraudulent acts of Enron as a result of the conflict of interest. The audit firm made good earnings from the consultation fees given by Enron and they did not wish to destroy the relationship. The Certified Public Accountants that were hired by the company were pressured into working around the loopholes of the accounting information and profits and losses projections to conceal the negative financial position of the company. As a result, the shareholders received financial reports that only reported the upside of the company, rather than the balanced view. The information led many investors on because of the good financial reports that were presented. What they did not know was the loss that the company accrued from failed projects and deals, the use of un-cushioned investments that exposed the company to losses and collapsing risks.
Enron Corporation committed a series of unethical practices as it dragged other people and companies into the mess. They include the misrepresentation of information in their balance sheets whereby they deliberately complicated the financial reports to ensure that the hidden information is never revealed, and that the shareholders never question the information presented on them. After the truth came out, the company continues with dishonest activities such as the elimination of evidence that was necessary for the investigations. Eventually, the company was estimated to have accrued like $ 23 billion in liabilities. Some of the crimes that the CEO and his executives were charged for were insider trading, money laundering, conspiracy and fraud.

The Effect of the Downfall of Enron

The downfall of Enron saw thousands of Americans lose their jobs. In addition to that, the shareholders of Enron lost $74 billion four years prior to the company’s statement of its bankruptcy. About $ 45 billion of the loss was attributed to fraud. Enron owed more than $ 67 billion .
The Enron scandal also inspired the Sarbanes-Oxley act that seemed to mirror all the unethical practices that Enron had committed step by step and addressed them with laws and regulations. Besides the formation of the act, the Public Company Accounting Oversight Board was formulated in line with the requirements of the act. The board was meant to formulate new standards by which the public accounting companies were supposed to prepare their financial reports. The New York Stock Exchange proposed new rules of governance of public companies. The provisions of the proposal were the requirement of all companies to several independent directors. The independent directors should comply with the provisions of independent directors. The compensation, audit and nominating committees were also required to have mane independent directors. The board is also required to hold sessions without the presence of the directors. The measures were proposed to reduce the cases of fraud and misrepresentation of information .


Unethical practices within the business environment involving the misrepresentation of information and the manipulation of the financial reports of an organization are a pre-liquidity to their downfall. Enron was a large corporation that could have dominated the field of energy had it taken the necessary ethical measures. However, the greed of the CEO and the directors resulted in fraudulent activities and eventually, the downfall of the company. New statutes and laws were introduced to govern the activities of companies after the event. In addition to that, the penalties of such fraudulent and unethical behavior were increased to discourage other companies from repeating the same mistake.

Works Cited

Astrid, Ayala and Giancarlo Ibárgüen. "A Market Proposal for Auditing the Financial Statements
of Public Companies." Journal of Management of Value (2010): 1-30.
Bernardi, Richard A. and Catherine C. LaCross. "Corporate Transparency:Code of Ethics
Disclosures." The CPA Journal (2005): 1.
Newyork Times. Enron Shareholders Look to SEC for Support in Court. 2007. 19th Feb 2015
Silverstein, Ken. Enron, Ethics And Today's Corporate Values. 14th May 2013. 19th Feb 2015

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WePapers. (2020, November, 19) Unethical Business Practices: The Enron Scandal Report Samples. Retrieved August 20, 2022, from https://www.wepapers.com/samples/unethical-business-practices-the-enron-scandal-report-samples/
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"Unethical Business Practices: The Enron Scandal Report Samples." WePapers, Nov 19, 2020. Accessed August 20, 2022. https://www.wepapers.com/samples/unethical-business-practices-the-enron-scandal-report-samples/
WePapers. 2020. "Unethical Business Practices: The Enron Scandal Report Samples." Free Essay Examples - WePapers.com. Retrieved August 20, 2022. (https://www.wepapers.com/samples/unethical-business-practices-the-enron-scandal-report-samples/).
"Unethical Business Practices: The Enron Scandal Report Samples," Free Essay Examples - WePapers.com, 19-Nov-2020. [Online]. Available: https://www.wepapers.com/samples/unethical-business-practices-the-enron-scandal-report-samples/. [Accessed: 20-Aug-2022].
Unethical Business Practices: The Enron Scandal Report Samples. Free Essay Examples - WePapers.com. https://www.wepapers.com/samples/unethical-business-practices-the-enron-scandal-report-samples/. Published Nov 19, 2020. Accessed August 20, 2022.

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