Enron Case Study: Financial Fraud, Accounting, and Policies

This report provides an analysis of the Enron case study, focusing on financial fraud, accounting practices, and business policies. The report begins with an overview of the case, highlighting the corporate corruption and accounting fraud that occurred. It explores the role of the auditing firm and executives in the fraud. The report then delves into fraud detection, identifying the shift to mark-to-market accounting and the establishment of off-the-books corporations as red flags. The importance of an accounting and finance system in preventing and detecting fraud is discussed, along with the benefits of separating responsibilities and automating reporting procedures. Finally, the report emphasizes the need for businesses to educate employees on ethical conduct and divide responsibilities to protect stakeholders.

Running head: BUSINESS
Business
Name of the Student
Name of the University
Author Note

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Table of Contents
Overview......................................................................................................................................2
Detection of fraud........................................................................................................................2
Accounting and finance system...................................................................................................2
Business Policies..........................................................................................................................2
References....................................................................................................................................3

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Overview
The corporate fraud which had occurred in 2001 and is infamous for the level of scandal
is the case of Enron. It was revealed that the company was involved in corporate corruption and
accounting fraud (Dibra, 2016). Due to the close links of the company with the white house, it
was allowed to operate freely without any scrutiny. Some of the frauds involved
misrepresentation of earnings, fraudulent ‘energy crisis’ and embezzlement by the executives.
The auditing firm Arthur Andersen and the chief executives were involved. The estimated losses
were around $74 billion.
Detection of fraud
One of the signs was the change in the accounting policy of the entity from book value
accounting to mark-to-market accounting. While this policy is used for trading securities, it
indicates a high uncertainty in the valuation of businesses. The large number of off-the-books
corporations opened by the entity were also a potential red flag in the frauds caused by the entity.
Accounting and finance system
A benefit of having an accounting and finance system as a part of the business is the
separation of responsibilities. Hence, the opportunity and incentive to commit a financial fraud
would have reduced. Any uneven reporting procedures followed by the entity would also be easy
to detect with the help of an accounting system due to automation (Liu, 2015). Hence, there
would have been a chance of detecting the fraud early.
Business Policies
Employees should be educated and explained about the need for following ethics as a part
of the business. The responsibilities should be divided for the benefit of all stakeholders.

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References
Dibra, R. (2016). Corporate governance failure: The case of Enron and Parmalat. European
Scientific Journal, 12(16).
Liu, Q. (2015, December). ERP-based Business Accounting and Finance Management. In 2015
3rd International Conference on Education, Management, Arts, Economics and Social
Science. Atlantis Press.