Enron: Questionable Accounting Leads to Collapse

ENRON: QUESTIONABLE ACCOUNTING LEADS TO COLLAPSE
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Question 1
The corporate culture of Enron has significantly contributed to its bankruptcy which is evident
based on the following aspects.
Enron’s bankruptcy was considered largest corporate bankruptcy in United State at the time. It is
apparent from the case study that the corporate culture of Enron was aggressive and more likely
to be arrogant in nature. Such corporate nature fortified unethical behaviour in the organisation
with the aim of getting monetary gains irrespective of any questions on practice conducted by the
employees of the company. In this regards, the executive compensation strategy of Enron was to
increase the wealth of their executive partners rather than focusing on deriving profit for the
respective shareholders (Ferrell, Fraedrich&Ferrell, 2005). They were following “rank and yank”
system in the organisation which resulted in a “fierce environment” that meant that bottom 20%
of company’s employees were forced to leave the company. It indicates that various unethical
practices and decision were continuously followed by the company and no one was reporting this
unethical behaviour. Moreover, rather than encouraging integrity values and respect, the
company was involved in “innovation and punished employees deemed week” in regards to
accomplish corporate culture reward. Also, the company was more likely to reward high point
performance employee and if any employee does not show high performance on their
performance measuring criteria, then the company directly fired the employee from the
company. As a result, the employees were following the philosophy of engaging in high risk
transactions that could lead to high profits for the company irrespective of the fact that high risk
or beyond the risk tolerance level of Enron can lead to minimal profit, which created a “survival
for the fittest” environment of employee.It made the system of the organisation as “the last
straw” which caused various issues in the organisation. As a result of this, employee pitched
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against one another employee and also minimized the communication and cooperation. Unethical
corporate practices were also seen in the financial statements of the company which represent
company to be more successful in order to keep the high share prices (Fusaro & Miller, 2002)
Question 2
Yes, it can be said based on the case facts that bankers, auditors and attorneys played a major
role in the demise of Enron in many ways.
Bankers
It is evident that many banks were supportive to the manipulation process of Enron to
misrepresent the financial statements in order to show profit to the shareholders. For example:
three British bankers fraudulently worked for Enron to represent false financial statements and
made a secret profit of $7.3 million. Also, a brokerage and investment banking company called
as Merrill Lynch was also part of unethical practice of Enron because it was having significant
involvement in fraudulent manipulation of income statement by doing severe false transactions
(Zimmerli, Richter & Holzinger, 2007).
Auditors
It is apparent that accounting firms were one of the critical business associates of Enron and due
to the presence of common interest, low independence of auditing, the auditors had a quid pro
quo relation with the management. It caused several unethical and also unprofessional practices
of auditing. This is because investors would keep an eye to the financial statements of the
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