Surely all praise is for Allah . we praise Him and seek his help. We seek his forgiveness and we seek refuge in Him from the evil of our own souls and from the wickeness of our deeds . Whomever He guides shall never go astray, and whomever He allow to astray shall never find guidance. I bear witness that none has a right to be worshiped but Allah alone, who has no partner , and i bear witness that Muhammad is His slave and His last and final messenger . may , mercy and blessing o f Allah be upon Him and upon His family and His companions and upon those who follow them in piety until the Day of judgement Inshaa Allah ameen.
The ENRON, The Smartest Guys in The Room,” analyst Jim Chanos asks why,
the 7th largest company in the world at the time, could not supply
investors with basic financial statements. Enron acquired other companies to
move into electric utilities, finance, risk management, and, toward the end, a
telecommunications company this because Enron has no knowledge in any of these areas .most of these new were not successful and Enron expand into
Enron development became on to build power plants around the world into Enron Broadband
and Some projects were marginally
profitable, other disasters, but the same SPE manipulations were used to set up
complex deals so Enron could hide the losses and book nonexistent profits
instead.
Trading profits increased with volatility and opportunities expanded
when California deregulated energy. Enron used every statements as we learn in accounting are the
fundamental tools through which we communicate a corporation’s financial position
but miss imaging the revenue of the company and manipulating accounting
features in order to attract the people about
their company are doing great jobs why they are faking them by giving them wrong figures
that this is the amount of Assets owned by the company but they make an
increase of the asset owned by the company.
The
main contributing factor to the failure of Enron as a company was greed. It
started from the moment that Jeff Skilling incorporated mark to market
accounting into Enron’s policies, and then that system was immediately taken
advantage of. The initial bonuses paid out to executives were based on
speculations in futures that were never realized. The company spent the next
ten years trying to generate new revenue streams in order to make their company
as successful as they always said it was. Often times these revenue streams
were sustained through unethical or even illegal dealings on the part of Enron
and the companies they did business with. Greed and cutthroat attitudes were
ingrained into Enron’s corporate culture and at every turn employees were
manipulating the system in order to make bonuses, or mis-represent numbers from
their department. When this is the corporate culture and your corporation is
one of the largest in the world, it is difficult for individuals within the
company to stand up for their own system of values.
Another problem with Enron that led to its downfall was its management team. Its chief financial officer {CFO} was on the board of Enron and the Raptors, showing the connection between the two and how they would all eventually be brought down together. During the time of the SEC investigation in late 2001, the Wall Street Journal produced an article reporting how the CFO realized millions of dollars in profit on one of his partnerships with Enron (Smith). This caused investors to start to worry about the CFO’s duty to Enron if it has a role in these linked partnerships. The CFO then ended his relationship with these partnerships after pressure from Wall Street and Enron shareholders grew.
The partnership also had written put options on Enron stock and settled early, causing it to realize huge profits. This occurred right before Enron stock’s price declined. If the options had been exercised after the decline, the partnership would have realized losses In the subcommittee how he could conduct himself with such blatant this -regard for personal or business ethics he plead the Fifth Amendment and refused further statement. On December 3rd the on August 14, 2001 I believe that the company was in strong financial condition”, two days later the price of Enron stock dropped to $36.85. Skilling was a rat jumping from a ship that he knew was sinking. He resigned without a PR campaign or a plan on August 14th; Ken Lay returned as chief Excusive officer {CEO } and stated that “The Business is doing Great.
Eron was a massive failure because of it’s size, and The whistle was finally blown by an Enron insider. An Enron Vice President named Sharron Watkins was given a list of asset accounts to manage when she moved into Fastow’s department. She discovered Fastow’s intricate web of assets and “couldn’t believe Arthur Andersen signed off on it,” the assets she was to manage were owned by banks at the time and were even guaranteed by Enron stock. In an anonymous letter to Ken Lay Watkins disclosed her findings
Regulators of Auditors failed: SOX established the Public Company Accounting Oversight Board (PCAOB) with Title I of its act to oversee the auditing of public companies. One way it does this is in its inspections of public accounting firms to ensure its compliance with the auditing standards the board sets forth. In addressing internal controls, which was the main problem between Enron and Andersen, each accounting firm, has its audit of a company, tests its internal control structure and identifies any weaknesses it finds (“Sarbanes-Oxley Act of 2002”).
SOX, also implemented the requirement that the primary auditor must be rotated periodically so that the same person isn’t continuously auditing the same company throughout its life. This internal control within the accounting firms aims to increase exposure of the companies’ financial statements among partners of the firms (Pearson). Information regarding a company’s internal control structure is required in their financial statements under SOX Section 404 (“Sarbanes-Oxley Act of 2002.
The Wall Street Journal printed findings detailing Fastow’s deception and the SEC launched an investigation as a result; I’ll resist commenting further on a government agency failing to act until they see it in the Journal or on CNN. Billions in mark to market profits should have actually been recorded as losses and new financial statements were issued by Enron. By October 23, Enron’s stock price had fallen to $19/share. While Ken Lay addressed the company in order to answer questions and reassure his employees, representatives of Arthur Andersen were shredding documents a few blocks. In one day they destroyed over one ton on financial records. As the company was going under, Ken Lay still managed to sell $26 million of personal stock while all other shareholders were frozen out of their accounts. The next day on October 24th Enron fired Andrew Fastow when they learned that his company LJM had siphoned off over $45 Million in profits from his various “raptor accounts.” When asked stock price dropped to a scant $0.40/s hare and the next day Enron on December 2, 2001. Declared bankruptcy.
Auditor failure , Here the Enron become totally bankrupt this is because the staffs and executives sold over $1 Billion in personal stock options in the two years leading up to the collapse of the corporation. When the corporation went bankrupt 20,000 employees working directly for Enron lost their jobs. The average severance pay was $4500 while the top executives collected final bonuses totaling $55 Million. In 2001 employees of Enron Corporation lost $1.2 Billion in retirement funds and retirees lost over $2 Billion in pension funds. Meanwhile executives sold $116 Million in stock as the company was going under.
The Country’s oldest accounting firm voluntarily gave up their license in the wake of handling Enron’s accounting audit function. Employees were fired and lost all of their retirement funds invested in Enron. Over 22,000 Arthur Andersen employees lost their jobs over night and the company’s and therefore the employee’s the opinion that people in general have someone or something and depend on the behaviour and the characters of the company were tarnished forever, whether they were involved with the Enron Audit or not. The intangibles such as employees of Enron’s subsidiaries, other shareholders and countless other individuals were likely negatively impacted by Enron’s greed and failure to accurately represent their company.
Enron was a massive partly failed because of the lack control to protect the integrity of capital market. Enron utilized an accounting method called mark-to-market, in which it records its balance sheet accounts at market value instead of book value. It had been using this accounting method since 1992, under the permission of federal regulation. Enron was able to count revenue from its long-term contracts as complete, instead of a more revenue-to expenses matching approach such as percentage-of-completion, where revenue is recorded as work is performed. it was then easy for Enron to manipulate their gains and Losses on these contracts because there was no active market that far in time. It was then recognized that entire amount of the estimated gain in the first year, on the claim that revenue is earned when the contract is entered into. The dangerous of this method of accounting is that when the date of Exercise comes. Where the market will be expecting the opposite while Enron account huge amount of losses. Enron then chose to delay the recognition of losses by hidden them in the net gain on the financial statement or they do not even reporting them at all. Enron was able to appear successfully for long time later failed down.
The measures that were adopted by the US after the scandal congress some of the measure are As follows :(1) General accepted Accounting Principle(GAAP) , (2) Securities and Exchange commission (SEC), (3) American Institude of certified public(AICP) , (4) Financial Accounting Standards Board (FASB),(5) General Accepted Auditing Standard (GAAS), (6) Public company Accounting Oversight Board (PCAOB), (7)Special Purpose Entices (SPE) , (8) Chief Executive Officer (CEO), (9) Chief Financial Officer(CFO), (10) Auditing Standard Board (ASB), (11) Internal Accounting Standard Board (IASB).
The GAAP, the US Congress purposely focused on fairness and not compliance with GAAP. This requirement subjects the officers to individual criminal charges and/or civil liability and thus presumably motivates officers, especially the CEO, to become actively involved in financial reporting processes. Failure to do so, you face the consequence.
The SEC, has pointedly refused to accept the arguments, that stating the European companies have voluntarily chosen to have access to capital markets in the US, and therefore they have voluntarily subjected themselves to US law. Since that time, the Royal Ahold and Parmalat scandals occurred and the objections of the European companies have moderated.
furthermore, Audits in standard in US congress are performed that are in accordance with Generally Accepted Auditing Standards (GAAS); auditing is not addressed by GAAP after that bin 2002 , the use of auditing method becoming popular and self –regulating Auditing standard which was establish by Auditing Standard Board (ASB), a senior technical committee of (ACIPA) . Further more, (ACIPA) also mandatory quality reviews for Auditing Standard firms with the member were directed to the decision of firm and conducted by members of (ACIPA).
In conclusion, Public Company Accounting Oversight Board (PCAOB) . The US Congress created the PCAOB a new body that regulate auditing And treated the other matters which are not directly related to this case. The oversight board will register and inspect Accounting firms that audit Securities and Exchange Commission (SEC) registrants. Large accounting firms will be inspected annually and small firms every three years. Many of the activities regulated by this new oversight board are those that traditionally have been self-regulated by the accounting profession or have been regulated only by states.
Bibliography
Board of Public Accountancy (http://www.tsbpa.state.tx.us/).
Legal System
Ø The SEC web site http://www.sec.gov
Ø PCAOB (www.pcoabus.org
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