Enron Fraud Scandal: Ethical Corporate Governance and the Sarbanes-Oxley Act of 2002

This report discusses the Enron fraud scandal in relation to ethical corporate governance and the Sarbanes-Oxley Act of 2002. It explores the case study, the impact of corporate governance, and the provisions of the Sarbanes-Oxley Act. The report concludes with a comparison of the Enron scandal and the act.

Individual Report Business
Law and Ethics
INTRODUCTION...........................................................................................................................................2
MAIN BODY..................................................................................................................................................2
TASKS...........................................................................................................................................................2
Discuss this case in relation to ethical corporate governance and the Sabane-Oxley Act of 2002 .........3
CONCLUSION ..............................................................................................................................................5
REFRENCES .................................................................................................................................................6
Books and journals ......................................................................................................................................6
Sewu, P.L.S., 2019. Good Faith as a Key Principle of Business Ethics to Franchise Agreement and
Development in Indonesia. Journal of Legal, Ethical and Regulatory Issues. 22(1). pp.1-7.........................6

INTRODUCTION
Business laws are those rules and regulations that has been formed in order to make sure
that a business organization is established within the framework of law. Such laws have
prescribed guidelines that are bound to be followed by an organization to establish itself within a
country. Ethics are those rules and regulations that helps in maintaining of discipline and order
within workplace of an organization. These laws deals with behavioral aspect of employees that
can impact overall performance of an organization. This report is based over a case study of
Enron Fraud scandal. Further corporate governance and the Sabane-Oxley Act of 2002 has to be
discussed in relation to the case study.
MAIN BODY
TASKS
Case scenario: This case is based on various series of event that has resulted into
insolvency of Eron Corporation that was dealing in energy, products and services. All this
happened in the presence of Arthur Anderson who was the CEO of the organization at that time
and was holding one of the largest auditing and accounting companies. This fall of Enron was of
$60 billion in the assets and has been name as one of the largest insolvency that has happened in
United States. As this has been generated over the debt that has been hidden by the organization.
Also the legislation that has been formed was not effective on improving the standard of
accounting. This has made repercussion within financial world. The organization has been
formed in the year 1985 through merger of two organizations that is Huston Natural Gas
Corporation and InterNorth. (Pulapa, 2020). This merger was later named as Enron in the year
1986. After this U.S Congress adopted series of laws that deregulated sales of natural gas. As in
early 90s the organization lost exclusive right that has been operating pipeline through the help
of Jeffrey Skilling. He later become organizations chief operating officer. Also Enron has
reformed itself in trade energy with the help of derivative contracts which acted as an
intermediate of natural gas producers for its customers.Under leadership of Skilling Enron soon
become a bigger entity for natural-gas as a contractor and huge profits were generated with
revenue upon trades done by them.
As the success of the company was reaching at its heights and Enron faced drastic
competition in energy-trading business which resulted into decreasing of profit. In this pressure
from shareholders, organization executive began over relying on dubious accounting practices
that includes technique of marketing accounting. Under such kind of accounting the organization
wrote some unrealistic gains out of the trading that has been done in there present income
statements. This created false current profit and become problematic for operations and process

ongoing within the organization. They used Special Purpose Entities in which limited partnership
has made limit over partners formed outside. Various organizations uses SPE to distribute its
assets but Enron did not utilized in proper manner. SPE was owned by Arthur Anderson himself
has been a consultant in it(Hamzani, 2020).
The situation of Enron become worst and drastic that they become apparent in the mid of
2001 and various analysis has began to be done over Enron. This made releasing of financial
statements. After this internal investigation has to be conducted through memorandum by
organizations vice president.
Security Exchange Commission began investigation over Enron and Fastow's SPE. As
detail accounting frauds has emerged due to fall in price of shares from ninety dollar to one
dollar by the end of 2001. After this case has been filed for insolvency on organization. All this
was done after the investigation started by SEC. Various executives of Enron were charged and
sentenced to prison. Due to this lot of clients were lost by the organization and image of
organization was drastically impacted. Further this incident lead Enron to face lot of legal issues
and an separate case was filed by shareholder on Arthur Anderson. This scandal resulted in the
forming of new legislation for increasing of financial reporting in trading of organizations. The
legislation that was amended is Sarbanes-Oxely Act 2002 which become really helpful in dealing
over financial frauds.
Discuss this case in relation to ethical corporate governance and the Sabane-Oxley
Act of 2002
Corporate Governance: It is considered to be the those rules and regulations that has made
organization perform various functions in disciplined manner. Corporate governance has been
helping in managing interest of an company’s stakeholder’s which are shareholders, senior
management executive, customers, suppliers, financiers, government and community. That is
why corporate governance that has been providing framework which has attained organizations
objectives. It has been impacting both internal and external performance within an organization.
Major objectives of corporate governance is as follows:
 Corporate governance are those set of rules that makes management within an
organisation possible.
 In this major impact is being done by board of directors over corporate governance.

 Bad corporate governance resulted for making an organisation loss trust and transparency
which affects financial health.
A company’s corporate governance is important for investors because it shows direction and
integrity that has to maintain within a business organization. Good corporate governance always
helps in building treatable image of a company within market. Also investors and community.
This has been resulting in making promotion of financial viability by creating a long term
investment opportunity for market participants. Communication in a company corporate
governance is one of the major component of community and investors relation. Investors
relation site of an firm has been outlined through corporate leadership and helps in making
governance effective through executive team, board of directors. Also corporate governance is
considered to be one of the most important part of an organization and acts as a valid document
within the eyes of law(Brenkert, 2019).
Sarbanes-Oxely Act 2002: This act has been formed by U.S. Congress on 30th July and
since then it has been helping in protecting investors from any kind of fraudulent activities which
has taken place in an organization. It is mandatory to make strict reforms that has been existing
through security regulations and penalties has been decided under the act for lawbreakers. This
act was brought into action for avoiding financial scandals in early 2000s that has been involving
various companies. If any fraud that has accrued is going to impact upon trust generation which
directly impacts investors capability of investing. The act consist of various basic principals that
has been explained as follows:
 This act has been formed over response which helps in moderating corporate finance and
factors leading towards formation scandal.
 Such legislation has made various kinds of punishment and set of rules that has helped in
maintaining record over activities related to finance.
 The act also made advancement in the penalties prescribed for violation of laws.
Rules and enforcement policies has been outlined in Sarbanes Oxley act 2002 has been
amended in order to replace the then existing laws that has been helping in dealing with frauds
that was Securities Exchange Act of 1934 and other laws that has been imposed by Security and
Exchange Commission.

Also act has marked out various requirements over information within the tecnology
department regarding electronic records. In this various business practices has been mentioned
over the records within an organization. Standards in the SOX Act of 2002 has not specifically
mentioned about duties to be stored in records of IT departments responsibility to store them.
If good corporate governance would have existed then factors would have been identified
and scandal could have been stopped. Sox Act 2002 come after the scandal and this act was
formed before then strict punishments would be given to law breakers and organization
performing financial fraud would have been punished with high penalties (Barraquier and et. al.
2017).
CONCLUSION
From the above report it can be concluded that business law and ethics are required by an
organization to achieve goals and objectives with perfection. Both the laws helps in providing a
frame work that is bound to be followed by an organization. Further in this report Enron Scandal
has been explained with its summary. Also corporate governance has been explained with SOX
act 2002. In the end corporate governance has been compared with the scenario and Act has also
been compared with scenario.

REFRENCES
Books and journals
Barraquier, A and et. al. 2017, July. Innovations in Teaching Business Ethics and Business &
Society. In Proceedings of the International Association for Business and Society (Vol.
28, pp. 105-117).
Brenkert, G.G., 2019. Mind the gap! The challenges and limits of (Global) business
ethics. Journal of Business Ethics. 155(4). pp.917-930.
Carter, S.M and et. al., 2017. A code of ethics for social marketing? Bridging procedural ethics
and ethics-in-practice. Journal of nonprofit & public sector marketing. 29(1). pp.20-38.
Hamzani, A.I., 2020. BUSINESS ETHICS AND LEGAL LIABILITY IN THE
MANAGEMENT OF STATE-OWNED ENTERPRISES. JOURNAL OFCRITICAL
REVIEW .7(15). pp.1401-1407.
Pulapa, S.R., 2020. Business Ethics: An Introduction. In Business Ethics and The Bhagavad
Gita (pp. 1-14). Springer, Cham.
Sewu, P.L.S., 2019. Good Faith as a Key Principle of Business Ethics to Franchise Agreement
and Development in Indonesia. Journal of Legal, Ethical and Regulatory Issues. 22(1).
pp.1-7.
West, A. and Buckby, S., 2020. Ethics education in the qualification of professional accountants:
insights from Australia and New Zealand. Journal of Business Ethics. 164(1). pp.61-80.