Enron Fraud Scandal: Causes, Impact, and Sarbanes Oxley Act

This study investigates the Enron crisis, its causes, impact, and the implementation of the Sarbanes Oxley Act. It explores the unethical practices, collapse, and legal consequences of Enron's fraudulent activities. The Enron scandal led to the largest bankruptcy reorganization in U.S. history and resulted in the drafting of the Sarbanes Oxley Act in 2002.

ENRON FRAUD
SCANDAL

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
Task 1......................................................................................................................................................3
Task 2......................................................................................................................................................4
Task 3......................................................................................................................................................4
CONCLUSION...........................................................................................................................................7
REFERENCES............................................................................................................................................8

INTRODUCTION
This study investigated the Enron crisis with a company located in Houston , Texas. Enron is
really an American oil company. These were primarily released in October 2001 leading to the
collapse of sime darby, another of the 5 largest auditing and accounting companies throughout
the world. The firm is currently in collapse. It was already listed as the greatest audit ailment,
together with the largest bankruptcy reorganization in U.S life. The study further addresses the
acknowledgement and response of and recognises the theoretic and the national qualification and
represents the moral tension and uncertainty throughout their working life and occupations.
MAIN BODY
Keneth laid founded Enron from the Houston crude oil combining with north in 1985. In addition
to the company's shares, Enron investors lodged a $40 billion complaint, which amounted to
US$ 90.75 / equity in Middle 2000. The inquiry was later launched by the US securities
commission, as well as a competitor from Houston, Dynegy, acquired the firm at a relatively
cheap price. The agreement collapsed and Enron lodged a complaint only Under insolvency code
on December 2, 2001, contrary to chapter 11. Enron's $63.4 percent holdings have made it
America's biggest corporate restructuring (Sale, 2004).
Enron 's portfolio has grown by 311 percent from the beginning of 1990s to the end of 1998,
which is just greater than the formalised annual growth rate as well as a weak 500 index.
Therefore the inventory in 1999 became 56% higher and 87% higher in 2000. Enron 's shares
met its total value by dec. 31, 2000, to something like a cost of $83.13 and even up to $60
trillion, 70 times its revenue and six times the market price. Moreover, Enron has been listed as
largest U.S. Creative Corporation.
Task 1
For traders and observers, the reasons of Enron's collapse is quite complicated. Its dynamic
business model and legal practises have forced the firm to employ accounting restrictions to
manipulate profits and adjust the cash position to produce favourable results. In comparison,
some businesses turned tragic. The convergence of these concerns subsequently resulted
throughout the company's collapse, along with much of the difficulties proceeded by implied

information or lay intervention. However, moral practises were not only about offering loads of
charities' funds but rather about identifying and responding on future ethical violations until they
becoming legal problems. Enron failed and it was attributed to illegal behaviour including tax
misconduct and theft. The Enron bribery case was among the largest failures throughout the
United States when other thrift and credit banks collapsed throughout the 1980s. This scandal
makes it possible for the legal performance of the system of companies and enterprises
throughout the United States to be investigated closely. To achieve the honesty and morals of the
business entities as well as their concept of achievement, many organisations are required.
Enron's unethical and unethical market activity culminated in the Serbian Oxley Act of 2002
being drafted. It explains the effect on the investors as well as the implications of the Enron case
through fraudulent and immoral activities.
Task 2
The benefit of the organisation is later suffering if corporate ethics are overshadowed with the
need to get something forward. Finally, Enron was destroyed because of the persistent
accusations. The practises of a limited group of individuals without virtual principles have ruined
Enron’s reputation. Despite their ethical conduct, the top management involved with bribery can
be very good at doing the correct thing and will almost certainly bring a dramatic improvement
in the longer term. Typically, the correct act is the strongest one. Also those who care about
oneself for those of strong character. However for top administrators, this activity was not
available. The certainly feel as much about themself as for any Enron worker or for Enron in
general. It also assesses that the handling of theft is morally unsound and often senior officials
neglect ethical behaviour. They must be decent to lead the business during an ethically sound
fashion that suits themselves. The acts and effects of the scam had serious implications regarding
Enron's collapse (Schneider, Gledhill, Aiyer and Shore, 2003).
Task 3
The strategic management here study reflects on the social environment around Enron's systems
as well as the effect of the mighty danger of community on Enron internal controls will be the
properly installed for designing and obtaining devices connected for organisations. Robert
simulates document management processes, illustrates any need to involve community in quality
management structures comprehension. A prominent psychologist from the company, Edgar
Schein, has investigated suggesting a close correlation between management behaviour and the

existence of an organisational strategy. Enron presents a summary of how the transition of
governance and society cannot be properly discussed. While several organisations tend to have
advanced controls, the ultimate efficacy of those controls depends largely on the ethos and
management of the firm.
THE Group OF ENRONS SCANDAL ACT -2002, ETHIS Financial Accounting
The Sarbanes Oxley legislation was established in July 2002 following protracted corporate
crises in the americas between 2000 and 2002 in a view to restoring investment trust in the stock
market. This legislation had such a deep impact on corporate democracy in the United States.
The Sarbanes Oxley Act mandates public enterprises to improve their internal auditors and also
to carry out checks on internal management, to ensure the integrity of financial records and to
increase public disclosures by managers and officers. The Sarbanes Oxley Act further sets down
stringent criminal provisions for misconduct in shares and modifies the way financial advisory
companies work.
In reaction to a growing corporation of bribery and errors, the 2002 Oxley Sarbanes law was
implemented by Congress. The Act lays out new guidelines for businesses, including the creation
of specific auditors' requirements in order to mitigate differences of concern and to shift
obligations to full and correct reporting. These actions enforce cruel sentences on the law breaker
for the theft and misapplication of company profits. This act strengthens the criteria for
disclosure such as disclosure of information on the income statement to enhance transparency.
What is Oxley doing now? The reinforcement of municipal audit commissions is a clear result of
Sarbanes Oxley enactment on financial regulation. In upper management total liabilities, the
Audit Committee takes a broad advantage. The external auditor is a group of non-management
managers who have acquired additional duties including the approval of various IFRS experience
and audit facilities. Selection and review of independent audit and financial management
standards complaints (Li, 2010).
The Sarbanes Oxley act amends the financial statement responsibility of the management. The
top management directly certify the accounting records are correct in nature. If either of these
senior administrators intentionally or unintentionally makes a stupid credential he or she might
face 10 to 20 years in gaol. When the firm is obliged to clarify its accounts because of

wrongdoing in administration, top managers may be expected to give up the awards or make
money by promoting the shares of a company. Or if the manager or even the employee is found
guilty of a breach of security law, the national subsidy may be forbidden. The crime of Sarbanes
Oxley is punished tougher by barriers to prosecution, surveillance theft, postal theft, and money
laundering. The criminal punishment for the so-called stock cheating has risen to 25 years as
well as the criminal gaol term is around 20 years. The act would raise from 10 - 20 years the
statutory prison for postal and wire theft. It also dramatically raises fines for much the same
crime committed by public corporations. The Sarbanes Oxley Act, eventually created a
Supervisory Board of Public Companies, supporting public accountants' practices, restricting
their disputes of involvement and forcing the same government business to lead auditor partner
each fifteen years (Bhasin, 2013).
Revenue recognition: In terms of setting up and sustain electric energy, natural gas (NGPs),
reservoirs and manufacturing and refining projects, Enron and other energy providers prosper
from offering services like bulk exchange and risk handling. The purchase price can be stated as
the proceeds and the prices of the commodity because as costs of products traded, while
acknowledging the expense of making and selling the retailers. In another hand, the broker gives
a product to the buyer and therefore does not assume the same responsibility for purchase and
sale as the traders. If the services are listed as brokers, the trading as well as brokerage
commissions which be reported as revenues. Enron utilized variety of purposes to handle the
threats involved with real investments of limited corporations or entities formed to achieve a
temporary or unique objective. The organisation has opted to share limited knowledge on their
use of special agencies. The investor chose these businesses, however they are financed or
administered by independent investors. For the benefit of accounting accounts, a range of laws
are set down if a special organisation is a different provider from a subsidiary.
CONCLUSION
In the conclusion of report it is stated that the scandal ended when it consisted of a combination of
incompetence of the report, dissatisfaction with the accountant, a lack of financial auditing and lack of
internal controls. By implementing Sarbanes Oxley act, the organisation's vulnerabilities are identified
within the business and external practises and practises are formulated as well as a culture of concern. In
addition, the need for more impartial listed companies audits including monitoring activities, which

allows internal management mechanisms to be tested, further draws the spotlight on reporting and
corporate misconduct, as the investors lost $74 billion from over 4 years as they filed for bankruptcy
when their workers lost their social security payments in trillions.

REFERENCES
Books and journals:
Li, Y., 2010. The case analysis of the scandal of Enron. International Journal of business and
management, 5(10), p.37.
Bhasin, M.L., 2013. Corporate accounting scandal at Satyam: A case study of India’s enron. European
Journal of Business and Social Sciences, 1(12), pp.25-47.
Cernușca, L., 2011. Ethics in accounting: the consequences of the Enron scandal. Agricultural
Management/Lucrari Stiintifice Seria I, Management Agricol, 13(3).
Gledhill, J., Schneider, J., Schneider, P., Aiyer, A. and Shore, C., 2003. The Enron scandal: global
corporatism against society. Social Analysis, 47(3), pp.130-153.
Da Silveira, A.D.M., 2013. The Enron scandal a decade later: Lessons learned.
Sale, H.A., 2004. Banks: The Forgotten Partners in Fraud. U. Cin. L. Rev., 73, p.139.