Enron Corporation's Ethical Failures and the Sabanes-Oxley Act, 2002

This report delves into the Enron Corporation's financial scandal, examining its ethical failures in corporate governance and accounting practices. It explores the concept of ethical corporate governance, emphasizing the importance of adhering to laws and regulations while prioritizing the well-being of stakeholders and the environment. The report highlights Enron's violations of these principles, including fraudulent financial reporting and misuse of employee pension funds. It then discusses the Sabanes-Oxley Act of 2002, enacted in response to such corporate scandals, detailing its provisions for improved financial reporting, auditing, and corporate responsibility. The analysis underscores the effectiveness of the SOX Act in preventing future frauds and maintaining investor confidence. The report concludes by emphasizing the significance of ethical business practices and the role of the SOX Act in promoting accountability and transparency in the corporate sector.

Assessment

Table of Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
Discussion of the Enron case in relation to the ethical Corporate governance and the Sabane-Oxley
Act, 2002.................................................................................................................................................3
CONCLUSION..........................................................................................................................................6
REFERENCES..........................................................................................................................................6

INTRODUCTION
Business Law is the area of law of commercial sector which is important at the moment.
The law is quite important and it is to be followed by everyone form of organization in any of the
circumstances. Business entity performing their work as per Business law increases their
probability of accomplishing the goals. Business law along with ethics is equally necessary
which discusses that only following law is not important but working in the favour of nature and
society is also crucial. In respect to the project, ethical corporate governance will be explained
along with Sabane-Oxley Act, 2002. Both of this topic will connected to Enron Corporation and
their financial condition and accounting fraud.
MAIN BODY
Discussion of the Enron case in relation to the ethical Corporate governance and the Sabane-
Oxley Act, 2002
CASE SCENARIO: Enron Corporation - At the end of 2001, it was revealed that
Enron's reported financial condition was sustained by an institutionalised, systemic and
creatively planned accounting fraud. In detail, the case was related with the biggest accounting
fraud of the decade where false information was presented in front of the investor. The major
fraud was done by accounting department and audit team. As false statement has been prepared
by the accountants and where it was further approved by the management. This is not only the
issue in the case but there were other problem as well which states that Enron Corporation did
fraud in the pension of the employees (Arnold, Beauchamp and Bowie, 2019). They also used
their fund for their personal benefit due to which employees has to face the problem once
organisation was declared as bankrupt. The total amount of the fraud was equals to $74 billion
and the one-time chief was declared as major defaulter in the case and he was sentenced for the
time period of twenty-four years.
Ethical Corporate Governance: It is explained as the law and policies for the
commercial sector which they have to follow in ethical manner while performing any of the
business activity. Whenever performing any of the business activity, ethical values should be
considered which means that performing business is not only the main motive under this concept
but working in the favour of people and environment is also important. Here, decisions are

required to be review in a systematic manner by focusing that what can be negative impact and
what are the positive aspects of any business. If any of the circumstances the decision creates
negative impact for stakeholders connected with organisation, they must not take any of those
decision (Benthall and Goldenfein, 2020). Ethical corporate governance explains that business
can achieve their targets and goals only in that respective situation where they are able to follow
law along with ethical rules and regulations. In addition to this, there are number of resources
which is available and those resources should not be exploited as it may create issues for public
at large as well as for other entity. This are some of the major area which is concerned by the law
and should be followed. Talking about the Enron Corporation, they were not able to fulfil the
requirement of ethical corporate governance. The corporate governance says that any of
corporate decision should be based in the favour of organisation as well as in the favour of their
stakeholders. But, organisation like Enron corporation and their management teams never
concentrated towards that particular factor. There was no one in the entity who can take
responsibility to review each of the decision which was major problem in the entity. Talking in
the aspects of the financial condition sustainability, this particular thing was done with the help
of presenting wrong financial report which was ethically wrong (Ferrell and et. al., 2019).
Corporate Governance says that proper audit should be done of the accounts where significant
fraud has been done by the organisation.
Ethical Corporate Governance explains that performing business activity is not only the
thing but it is equally important for the organisation that they should be able to give value to their
employee. It is because employees play the significant role within the organisation but talking
about Enron Corporation, they only though that how they can collect higher fund. In order to
collect higher amount of fund they tried that how they use the fund of employee’s pension which
is ethical wrong (Ciulla, 2020). The business performing activity was totally against the ethical
corporate governance as financial statement was wrongly presented and those statement created
huge problem for the entity. It was one of the main reason that company was forced to show
down their business activity.
Sabane-Oxley Act 2002: It is the act enforced by the American Government for the
purpose of minimising the cases related to fraud and false representation of accounting
information. The act was majorly focused at the time when fraud of Enron Corporation came into

the lights of a public. The act says that major number of frauds in the commercial sector has
being done through the process of presenting false accounting statement. In order to end all of
this fraud in future time period, number of activities are to be majorly considered by the
organisation such as accounting statement should be maintained on a daily basis (Gallego‐
Alvarez and et. al., 2020). The mentioned information should be mentioned along with accurate
reference document and it is equally necessary that those accounted statement must be audited.
The main use of audit is to ensure that and identify whether all of the accounting statements are
true and fair or not. If in case, appointed auditor do not perform as per the requirement then legal
action can be also taken against them.
In case of Enron Corporation, at initial stage there accounted prepared false accounting
statement and even auditor also supported them. It was the main reason that investor has to suffer
in this case as false statement forced them to invest more amount of capital within the entity. The
commencement of the Sabane-Oxley Act, 2002 has mandate that in any of the situation, it will be
important for top level management to work and check accounting statements on a regular basis.
If in any of the situation management will not be able to work according to the law and check
their accounting statements on a regular basis then ultimate problem will arise upon them as it
will not be easy for them to accomplish their goals and target on specific time period (Moretti,
2019). The commencement of the law has changes some of the situation where it will be
necessary for them to present the actual position of the organisation for investor and other
stakeholders through which they can take actual decision that whether investment needs to be
done in the organisation or not. If not then what are the main reason behind it.
In short, the law and regulations which has been formed by the government will also not
allow any of the organisation to use any of the fund of employees which was the case in Enron
Corporation (Madden, 2019). Here, company will not be eligible to keep the pension amount or
any of the other amount with themselves as they will required to deposit the amount in respective
amount in the account of employees.
Effectiveness of the Sabane-Oxley Act, 2002: Just after the commencement of the law
is quite effective in nature because any of the organization will not be allowed to hide any of the
confidential information (Mea and Sims, 2019). It is necessary that organization should disclose

that information which are related with any of the stakeholders of the entity. In addition, penalty
for the default had been increased significantly in this respective act.
CONCLUSION
The discussion in the report clarifies that performing business activity is important but
those business activities should be done in an ethical manner. Enron Corporation and their
financial fraud was conducted by the management and accounting department just to attract
investors who plays essential role in performing any of the business activity. Sabane-Oxley Act
is helpful as it mandates number of new roles and responsibility upon any of the organisation
such as conducting audit on a regular basis.
REFERENCES
Books & Journals
Arnold, D. G., Beauchamp, T. L. and Bowie, N. E., 2019. Ethical theory and business.
Cambridge University Press.
Benthall, S. and Goldenfein, J., 2020, June. Data Science and the Decline of Liberal Law and
Ethics. In Ethics of Data Science Conference-Sydney.
Ciulla, J. B., 2020. Casuistry and the case for business ethics. In The Search for Ethics in
Leadership, Business, and Beyond (pp. 137-152). Springer, Cham.
Ferrell, O. C. and et. al., 2019. Business ethics, corporate social responsibility, and brand
attitudes: An exploratory study. Journal of Business Research, 95, pp.491-501.
Gallego‐Alvarez, I. and et. al., 2020. An analysis of business ethics in the cultural contexts of
different religions. Business Ethics: A European Review.
Madden, T. M., 2019. Law and Strategy and Ethics. Geo. J. Legal Ethics, 32, p.181.
Mea, W. J. and Sims, R. R., 2019. Human dignity-centered business ethics: A conceptual
framework for business leaders. Journal of Business Ethics, 160(1), pp.53-69.
Moretti, A., 2019. Navigating the grey areas of law and ethics in ethnography. Journal of
Organizational Ethnography.