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 largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron undoubtedly is the biggest audit failure. It is ever the most famous company in the world, but it also is one of companies which fell down too fast. In this paper, it analysis the reason for this event in detail including the management, conflict of interest and accounting fraud. Meanwhile, it makes analysis the moral responsibility From Individuals' Angle and Corporation's Angle.
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The year 2011 has marked a decade since the Enron collapse, considered the most emblematic corporate scandal worldwide. Despite its importance, few studies provide an integrated analysis of the underlying failures that allowed Enron’s debacle, going beyond the traditional view that reduces the case to a mere "accounting fraud". Few studies also evaluate the main lessons from the Enron scandal in perspective, by comparing its common causes with corporate scandals that emerged during the global financial crisis in 2007-2008. These are the gaps I aim to fill. I conclude that Enron’s accounting manipulations, rather than being the cause of the problems, were the consequence of managerial failures and wishful blindness by its stakeholders. I also show that some lessons from Enron have not been fully internalized by companies worldwide, since most of its underlying causes are similar to those of several corporate scandals that emerged a couple of years later.
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One of the unfortunate results of fraud is major financial commotion that results in atrocious loss for those –inter alia, investors, banks, insurance companies-that dabble in the financial markets (Obiri, 2011; Klimaitiene & Grundiene, 2010). Additionally, occupational fraud 1 tends to have very damaging economic effects especially when the result is bankruptcy (Association of Certified Fraud Examiners, 2010; Klimaitiene & Grundiene, 2010; Obiri, 2011). As such, the ability to detect the likelihood of financial fraud before it occurs or while it is in operation; is of great significance to economic progress (Klimaitiene & Grundiene, 2010; Obiri, 2011). This paper has analyzed the bankruptcy of Enron –the US Energy, Telecommunications, Commodities and Services conglomerate (Kroger, 2004) – through inter alia; its 10K filings with the Securities and Exchange Commission (SEC) and information gleaned from academic journals. The objective was to determine whether Enron's gigantic fraud could have been detected sooner. After employing tools such as Non-Financial Measures; Gross Margin Test; Altman's Z-score Bankruptcy Predictor; Modified Altman's Z-score; Chanos Algorithm; and Beneish Model, this paper concludes that, it would have been possible to detect Enron's fraud, as early as 1998 or at worst 1999.
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