Analysis Of The Enron's Scandal

Analysis of the Enron’s Collapse

The Enron scandal reveals the darkest side of the business world. Within twenty-four days, the seventh-largest company on the Fortune 500 went bankrupt. Millions of people lost their properties and jobs because of the horrifying acts that Kenneth Lay, Jeffrey Skilling, and Andrew Fastow committed. Enron’s toxic culture, both the internal and external regulation failures, and conflicts of interest between the two roles played by Arthur Andersen are the causes of the Enron’s collapse.

The Salient Facts and Key Ethical Issues of the Enron Scandal Before stepping into the ethical analysis of the Enron scandal, there are four major salient facts that we should know. First, Kenneth Lay founded Enron, an American

First, Enron manipulated their earnings and hid their losses by using this accounting policy. In the Enron movie, Skilling came out an idea that could book the profits (Gibney, 2005). His action reveals that he allows the firm to cook the books by manipulating the earnings that do not exist and hiding the losses that do exist. These two acts are the reasons why the Enron’s debt load developed. Also, the Enron’s executives forced analysts to give positive ratings in order to maintain a positive growth of Enron’s stocks. Moreover, Enron executives lied to the public about the stock value of Enron. In the Enron movie, Lay claims that “the business is doing great” (Gibney, 2005) while Enron is not. According to Kant’s deontological ethics theory, it is never right to lie, steal, or cheat (Hartman & Desjardins, p.141,

By looking at the Enron scandal, there are three major financial-related reformations that have been addressed by the SOX. First, “SOX forbids auditors of public firms from providing to their audit clients most non-audit consulting services” (Prentice, p.9, 2010). This reformation prevents Anderson’s wrongdoing from happening. Second, SOX restricts “off-balance sheet reporting, use of special purpose entities, and pro forma reporting” (Prentice, p.10, 2010). The new rule fixed the fundamental problem raised in the Enron’s scandal, which is the use of “Mark-to-market” accounting policy. Third, “SOX reforms stock analyst practices, primarily by minimizing, in several ways, the motivations they had to falsely praise the stocks of companies whose investment banking business their employers sought” (Prentice, p.10, 2010). This reform prevents stock analysts from giving good ratings