Governance and Fraud: Analyzing Enron and Fujifilm Scandals and Solutions

Governance and Fraud 1
GOVERNANCE AND FRAUD
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Governance and Fraud 2
Governance and Fraud
Introduction
Corporate scandals have recently become widespread where managers inflate their
financial statements with the aim of expanding their business using unethical ways. Many
businesses in the recent past have failed because of over-expansion of their financial statements
to absorb pressure of performing in the corporate world (Li, 2010, pp. 37). The companies that
are involved in the financial scandals are mainly those where the managers want to meet the
financial goals of the company using ways that violates the ethics. The paper will analyze Enron
and Fujifilm by investigating the causes of these scandals and provide solutions
Enron Scandal
Enron was among the primaries among energy firms to start trading via the internet,
providing a free service, which engrossed a huge volume of clients. However, whilst the
company boasted about the value of goods that it purchased plus sold online about $880 billion
in merely 2 years, Enron remained quiet about whether these business operations were actually
making any profits. The story of Enron Corporation represents a success story where the
company had reached dramatic heights in the corporate world only to experience a dizzying fall
in the corporate world (Coville & Kleinman, 2012, pp. 39). The Enron scandal disclosed in 2001
ultimately resulted in the bankruptcy of the US Company based in Houston, Texas. In 2001, the
firm’s shared were trading in the market at an unsurpassed high of about $90.75. Then, when the
scandal was revealed, the shares dropped over many months to record low of around $0.26.
Thus, what was specifically worrying regarding the scandal was how much a large-scale trick

Governance and Fraud 3
plan was productively pulled off so long, as well as how dogmatic agencies failed to act to stop
the scandal that affected many stakeholders. The Enron scandal was about optimistic
manipulation of the company’s revenues by the management because of the external pressures.
The company revenues were overvalued and losses of the company were never recorded until the
company was declared bankruptcy. The reason for the company’s bankruptcy was because
Skilling being the chief executive officer of the company permitted Enron to anticipate future
contract revenues as if they were really realized and disregard the firm’s cash flow wholly
(Gaspar, 2014, pp. 42).
Enron started to employ classy accounting methods to maintain its share price elevated,
increase investment not in favor of its assets, as well as stock plus keep an impression that the
company was successful. These accounting methods employed by the company are called
aggressive earnings management methods. Similarly, investment finances flowing into the
company from the novel ventures ended up on financial statements as profits, although it was
connected to explicit ventures, which were not yet established plus operating. Therefore, it is
clear that Enron employed several scheming financial practices, particularly in transactions with
Special Purpose Entities (SPE) to lower losses, inflate profits, as well as maintain debt away
from company’s financial statements to improve its credit rating in addition to safeguard its
trustworthiness in the marketplace (Jones, 2011), pp. 31).
The primary premise behind the practices by Enron was to achieve complimentary
financial statement results, not to attain economic goals or transfer risk. Thus, the affiliations by
the company could have been considered legitimate of reported based on current accounting
regulations or what is called the “applicable accounting rules”. Thus, one of these partnerships