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

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.