Accounting Ethics and Standards in the Failure of Enron Corporation

This report focuses on the accounting ethics and standards in the failure of Enron Corporation. It includes a literature review, research methodology, data analysis, and findings. The report aims to understand the best accounting practices that should be followed to meet accounting standards and ethics.

APPLIED BUSINESS RESEARCH
Accounting Ethics and Standards in the failure of Enron Corporation

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Abstract
The primary purpose of this report is to address the accounting ethics and standards in the failure
of Enron Corporation. This study will focus on different sections to assess the research concern
such as introduction, literature review, and research methodology. It can be illustrated that the
introduction section demonstrates the aim and objectives of study and also determines the
research background. It is found that the literature reviews section could be opinion and thoughts
of different authors with respect to the specified research matter. There are certain sources that
could be considered by the researcher to collect the feasible information about the research
matter such as books, journals, academic sources, online websites, and offline sources. It is also
evaluated that the research methodology is being practiced to perfume the research in a reliable
manner. Moreover, there are certain research technologies that are practiced by the researcher to
meet their aim and objectives like research approach, data collection method, sampling, data
analysis, and research type. In this research, a mixed research method is used by the researcher to
collect information about the research matter. Moreover, it can be examined that probability
sampling procedure will be practiced to select an appropriate sample from the specified
population. The statistical data analysis tool is practiced to get statistical information about the
research matter. Apart from this, descriptive research is used to get the conceptual information
about the research matter. It is also identified that ethical consideration will be practiced to
conduct appropriate behavior at the working place. In this, both primary and secondary data
collection methods are practiced by the researcher to collect the information about the research
matter.

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Table of Contents
Table of Contents........................................................................................................................................3
Introduction to the research.........................................................................................................................4
Research title...........................................................................................................................................4
Overview of the client organization.........................................................................................................4
Outline the structure of this proposal.......................................................................................................5
Introduction:........................................................................................................................................5
Literature Review:...............................................................................................................................5
Research Methodology:.......................................................................................................................6
Data Analysis and Findings:................................................................................................................6
Conclusion and Recommendation:......................................................................................................6
Research Problem and Research Objective..............................................................................................7
Research questions..................................................................................................................................7
Theoretical Background/Literature review..................................................................................................8
Research Methodology..............................................................................................................................12
Research types.......................................................................................................................................12
Inform and justify the research approach (quantitative, qualitative or mixed approach)........................13
Describe the type of data will be used...................................................................................................13
Describe how data will be collected: interview, focus group or observation for qualitative research,
and/or survey and experiment for quantitative research.........................................................................13
Describe and justify the sample: sampling frame, sampling methods and technique, sampling
characteristics, and size.........................................................................................................................14
Inform how the data will be analyzed: theme-based analysis for qualitative research and statistical
analysis for quantitative research, or a combination of both for mixed approach).................................14
Explain how the methodology plan address all ethical concern.............................................................15
References.................................................................................................................................................16

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Introduction to the research
Research title
The main topic of this research is to evaluate the Accounting Ethics and Standards in the failure
of Enron Corporation.
Overview of the client organization
Enron Corporation is an American based electricity and natural gas corporation. It was
established in 1930 and recognised as a largest producer along with developers of electricity.
Earlier, it was declared for bankruptcy in 2001. In addition, it is leading supplier of solar
renewable energy and wind. Enron engaged with 20,000 workforces between all of its
subsidiaries. It had observed revenue of about $101 billion in the year of 2000. The corporation
was listed in the fortune’s most innovative in the united stated for several years and was ranked
as number 7 on fortune’s 500 list in 2000.
What real problem does the research seek to resolve and why is it important to research this topic
With the purpose of maintaining the accounting ethics and integrity, there is need to follow the
accounting standards set by governing body, Arthur Anderson, and one of largest accounting and
audit company that was held accountable for the audit of Enron. Furthermore, among many other
accountabilities of auditor’s committee, the key responsibility is reporting the financial statement
in the way that comprehensibly demonstrates the financial position of the corporation (Trevino
and Nelson, 2016). It makes sure the conformity with all legal and ethical standards in that
territory, nation, and region. The committees should make sure that the corporation is fulfilling
the set of accounting activities in an ethical way that does not hinder the position of stakeholders
during making an investment decision.

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But, Arthur Anderson is failed for attaining its responsibility by overemphasizing the assets and
hence corporation was overrated. Moreover, there is high debts of billion of dollar were hidden
by auditors that ensure the public regarding high stronger position of company. Hence, it is
required that general people and particular accounting students need to comprehend the
accounting concern and resolve them by using the standard of accounting (Hamilton and
Micklethwait, 2016).
Outline the structure of this proposal
For attaining the research study in a systematic manner, the following research structure would
be used:
Introduction:
It is an initial chapter of investigation that will discuss the research aim and objectives, research
questions, research significance for preparing the knowledge base and vigorous information
associated with the concern of investigation. This chapter will also offer in-depth knowledge
regarding limitation of investigation that an investigator faces in attaining the study of the
investigation. The information related to this chapter would be beneficial for an investigator to
assess the direction of research and identify the concern of investigation in an effective way
(Ferrell, 2016).
Literature Review:
The second chapter of investigation associated with a literature review that is performed for
exploring the concern of investigation with applying different related aspects. Through this
chapter, an investigator would enable to involve the assessment of current understanding
associated with research concern and also determines that to what extent, it has been searched till

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the date. With the intention of this research, journals and articles will be reviewed. It helps in
developing the conceptual knowledge regarding the concern of the research study (Bhasin,
2016). It is also beneficial for an investigator to assess the gap in knowledge and creates the base
for using primary research techniques.
Research Methodology:
Under this investigation, an investigator will describe certain methods, tools, and techniques for
attaining this investigation in an ethical manner and systematically. There would be a certain
investigation process would be discussed such as philosophies and approaches, purposes,
research designs, data gathering techniques, data analysis techniques, and sampling. These
processes are justified to make sure the reliability and validity of the result (Belal, 2016). Under
this, research techniques are justified as per the topic and objectives of investigation that is vital
to attaining the reliable results and outcomes.
Data Analysis and Findings:
Under this investigation, this chapter is vital for making an effective assessment of gathering the
information. This chapter facilitates the effective platform for an investigator with respect to
categorizing the information and assessing them in against of each objective. In such a way, it
helps an investigator to organize and assess the data in a logical way through the appropriate data
assessment technique (Bhasin, 2016). By using this, an investor will enable to demonstrate the
information in a systematic manner for generating the valid results.
Conclusion and Recommendation:
This is the last chapter of investigation that makes competent to an investigator for concluding
the investigation as per the findings. This chapter developed the association between findings

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and objectives investigation to create the authentic and consistent conclusion. It also facilitates
the recommendation associated with the Accounting Ethics and Standards in the failure of Enron
Corporation. This chapter would be beneficial for explaining the practical implication and
instructing the future investigator for their investigation.
Research Problem and Research Objective
Following are the objectives of the investigation that would be used to resolve the research issue:
This research focuses on the misrepresentation of the financial statement by Arthur Anderson
and Enron Corporation and its failure to meet the accounting ethics and standards. The objective
of this research is to understand what best accounting practices are encouraged so that a
company will follow to its accounting standards and ethics. A series of untruthful acts has led to
a collapse of one of the largest companies (Swanson and Frederick, 2016). Hence this research
aims at finding out what roles could have been played by the accountants and auditors’ to avoid
the bankruptcy.
Research questions
 What could have the accountants and auditors’ done to avoid the phasing out of Enron?
Or what should the future accountants and auditors do?
 What responsibilities do the accounting and auditors’ committee have in relation to moral
obligation and ethical values?
 How can the accountants and auditors fulfill this obligation?
 What sort of positive/negative effects have to be faced by the stakeholders by
obeying/not obeying to the accounting ethics and standards?

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Theoretical Background/Literature review
According to Cohen et al. (2017), the scope of accounting ethics and standards is beneficial for
stakeholders such as shareholders, suppliers, and investors as it acts as the base for reliability and
trustworthiness of financial position of an organization. It is also stated that auditors and
accountants have the key responsibility to use the ethical accounting activities that make sure
that corporation is dealing appropriately.
In contrast to this, Tang et al. (2018) evaluated that auditing is an essential element of any
business and ethical auditing practice along with ethical auditing practices has become a key
aspect of failure and success of any business. It is recognized activities that discover auditors and
accountants have a key role in offering partial and correct information to the shareholders. It
helps to make a fair judgment about the investment in the respective corporation.
In the view of Samsonova-Taddei and Siddiqui (2016), the shareholders are the long-term
company bodies of any company, unlike the top authority who can make the decision for other
business. Therefore, it is argued that it is essential for shareholders to be incorporated into the
better decision making of the corporation. In addition, accountants and auditors have key
accountability to reveal the accounting data of the company to the stakeholders and they are
allocated with the same.
In favor of this, Alleyne (2016) stated that there is the primary role of accountants and auditors to
make transparent financial and accountant system for its stakeholders. This role would be
implemented by them by appropriately revealing the genuine facts and figures to an individual
who is related to the corporation. Moreover, this is not only factors for implementing the ethical
accounting, however, but it is also significant for workforces to grab the opportunity from the

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employment. This might be due to the facts that transparency aids to make better decisions for an
organization and workforces respectively.
As per the view of Boda and Zsolnai (2016), the financial misrepresentation was the key cause of
Enron scandal and it demonstrated the bad decision of company. The liabilities were hidden by
Enron that led by the company to show their higher financial status as compared to actual
performance. It is argued that there are major factors that lead the corporations for
misrepresenting its financial statuses such as accountants, ranks of employees, and auditors.
In contrast to this, Henning (2016) assessed that financial data of Enron was not appropriately
demonstrated on their financial reporting. Enron had developed Special Purpose Entity (SPE)
that used the stock of Enron as a security and hired high amount from Enron. This capital was
implemented to balance the overvalued contracts of Enron and thus unreported legal
responsibility of Enron was increasing. In addition, these legal responsibilities were concealed
from the stakeholders so that its price of stock would not collapse. When the educated statement
was not demonstrated then, they could not take required action for resolving the concern.
According to Warren and Jones, (2018) companies follow the accounting ethics and standards of
financial reporting such as the Enron, Audit Company and Arthur Anderson would not have
collapsed. There is a range of untruthful acts that does not reveal the actual financial statement
from the beginning. It is identified that managers should emphasize on what the stakeholders are
actually hoping. In such case, a better decision making the procedure for a corporation could be
addressed and any such kinds of concern could be resolved.
On the other side, Krambia-Kapardis (2016) evaluated that Enron had been instructed through
the accounting principles with practices and the regulation of the International Financial
Reporting System (IFRS). However, the failure of following these set of accounting practices

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was the key cause for the unsuccessfully perform the Enron. In this case, there are both financial
statement and ethical responsibility is counted as the enormous responsibility of auditors and
accountants. The company should focus on trustfulness, integrity, the good faith of accountants,
and interest when disposing of the financial statement of the corporation.
As per the view of Dibra (2016), the disclosure of accounting data builds confidence among its
shareholders and helps them to address the accounting concern if any, and therefore a better
judgment can be made for resolving the issues. Furthermore, the theory related to accounting
ethics aids auditors and accountants to understand the accounting policies. It also stated that
company should involve the shareholders in the management of a corporation. The signs of these
articles were strongly associated with financial and accounting data. It demonstrated how the
Enron had developed one of a gigantic corporation with a turnover of $100 billion earlier its
insolvency. However, this financial sound corporation had hidden the huge debts that were not
revealing to its stakeholders. Therefore, the corporation had to be a victim of bad monetary
performance earlier its failure.
As per the view of Staicu, Tatomir, and Lincă, (2018), fraudulent financial statement and
financial reporting with errors create the need for restatement for managers. It is stated that
biased reporting creates the defects like managed earning have overwhelmed the financial
statement in many nations in current years. All of those failures are ethics failure that
demonstrates the breaches of fiduciary responsibilities by people who accepted the
accountabilities, however, did not attain them. A more accurate idea of the actual operation of
that reporting system demonstrates that it is primarily damaged.
On the other side, Ramierz, (2016) asserted that the primary accountability of manager to
manage the financial reporting and manage the failure is to highly encouraged to a favorable

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statement on their stewardship. Thus, it helps to neglect the fiduciary accountability of investors.
Moreover, accountability comes on independent auditors who are highly persuaded by the
business manager for managing the failure financial reporting and performing their
accountabilities to users of the audited financial statement.
As per the view of Stephenson (2017), Enron and Arthur Andersen has faced very dishonor that
created the bankruptcy issues. Enron and Arthur Andersen are two major companies in the
accounting and utility industries correspondingly. This can take benefit to the government and
public bodies and investors for increasing the personal wealth through unethical and illegal
practices. Securities Exchange Commission (SEC) has developed the investigation that Enron
had engaged in unethical practices with respect to fraudulent financial reporting. As a result,
negative effects of fraudulent practices within Enron have fallen down the performance of the
company.
In contrast to this, Aduwo (2016) described that ethical value offers the basis where civilized
society exists. In the current scenario, ethical standards act as an extent that leads and assesses
the action of individual so that the fair and true practices are attained. It is assumed that an
individual derives ethical values from spiritual belief, personal experience and observation, and
history and literature. The government makes certain guidelines and ethical codes to which
everyone can settle at the workplace.
According to Foyeke, et al. (2016), there is a need for the business to lead its efforts with respect
to shaping the opinion of new entrants to the business. It could be attained via sound ethical
training. This research suggested that it is a significant phase with respect to renovating the
reliability of financial reporting procedure. Moreover, implementation and adherence of high
ethical standard are required for members of the business. It keeps attentiveness among members

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to perform their responsibilities in an ethical manner. The key to financial reporting is to deliver
the financial position to the potential investors, shareholders, other stakeholders,
lenders/creditors, and shareholders of the corporation.
In contrast to this, Al-Tawil (2016) assessed that financial reporting is the way through which
managers give an account of their stewardship to their stakeholders and owners
incomprehensible language and terms. It describes how resources are utilized and acquired for
creating the revenue such as utilizing the assets of the corporation for creating the wealth for all
their shareholders.
As per the view of Albeksh (2016), the expectation of public for reliable reports about the
corporate performance cannot be attained unless the professional auditors emphasize on the
public interest because primary loyalty and principle will protect the interest of public like
objectivity, independence of judgment and integrity. When the loyalty does not focus on the
management then, it could misguide. Since auditors sometimes perform in self-interest so that
they become non-reliable. The ethical environment has altered the auditing professionals because
of company scandals like Enron.
Research Methodology
Research types
In this investigation, descriptive research will be selected by an investor for describing the
research issues in depth manner. This research type will enable an investigator to comprehend
the views of different authors. This type of research will also aid to complete the main objectives
and answering the research questions. In contrast to this, exploratory and causal research will not
be used as it is based on the previous phenomenon and also no need to assess the relationship
between two variables (Obid and Demikha, 2016).

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Inform and justify the research approach (quantitative, qualitative or mixed approach)
Under this investigation, qualitative research will be practiced because it is based on the
descriptive research design. It will enable an investigator to assess the theoretical aspects
regarding accounting Ethics and Standards in the failure of Enron Corporation. In addition, the
qualitative approach enables an investigator for evaluating the conceptual framework and
different accounting factors that affect Enron Corporation. Under this research study, an
investigator will discuss the objectivity and making efforts to implement some specific
techniques for attaining the objectives of investigation successfully (Narayan, 2016).
Describe the type of data will be used
In this investigation, the secondary data gathering technique will be practiced for obtaining the
consistent and feasible outcome. This information would be gathered through some sources such
as journal articles, annual reports of Enron Corporation, books, offline sources, and online
websites. This data gathering tool will be significant as it will take minimum time with expenses
to generate the information. Secondary data will be also included in the literature review and
case study for obtaining the authentic and trustworthy investigation.
Describe how data will be collected: interview, focus group or observation for qualitative
research, and/or survey and experiment for quantitative research
With the intention of this research study, an investigator will use case study associated with
Accounting Ethics and Standards in the failure of Enron Corporation. By using this strategy, an
investigator would be enabled to assess the previous aspects of authors related to research
concern. Moreover, a case study would be practiced for assessing the particular research concern

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within the limit of companies (Sampson, 2016). In this investigation, a descriptive case study
would be applied by an investigator in order to assess the key concern related to the investigation
In contrast to this, a literature review will be practiced by an investigator for accomplishing the
aim and objectives of the investigation. In the literature review assessment, an investigator uses
different secondary sources like an annual report, online sites, reference groups, journal articles,
offline sources and online sites for generating depth knowledge. Since, these sources develop the
awareness regarding Accounting Ethics and Standards in the failure of Enron Corporation so
that, it aids to arrive at the consistent output (Herbert, et al., 2016).
Describe and justify the sample: sampling frame, sampling methods and technique,
sampling characteristics, and size
With the intention of this investigation, non-probability sampling is implemented by an
investigator due to the subjective nature of research. Under this type of sampling, the sample size
will be chosen by an investigator as per the accessibilities and personal judgment. In the context
of non-probability sampling, purposive sampling will be implemented by an investigator where
he/she will use their own judgment in order to select the case study from a large amount of the
population. This technique will enable a researcher to choose the feasible case study and makes
an appropriate judgment with minimum time along with the expenses (Urban, 2016).
Inform how the data will be analyzed: theme-based analysis for qualitative research and
statistical analysis for quantitative research, or a combination of both for mixed approach)
In this investigation, the theme-based assessment would be practiced by an investigator to assess
the data to obtain the authentic and reliable result. This technique would be practiced due to its
relevancy with the qualitative research design. The theme-based assessment technique will be
used to assess the data in a systematic way (Dumay, 2016).

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Explain how the methodology plan address all ethical concern
This investigation may also face the ethical concern with respect to a violation of the copyright
act, plagiarism, and data manipulation due to using secondary data. These concerns might be
avoided by an investigator in terms of offering the full credit to the investigators and authors via
using the in-text citation in each paragraph of the research study. In contrast to this, an
investigator will use a specific language for interpreting the gathered facts. The research will use
peer-reviewed articles for conducting the research study in an ethical manner (Gates, Prachyl,
and Sullivan, 2016).

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