University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Enron collapse A look back
Enron was formed as a result of merging with another company and it became a successful corporate. The joy of the business owners is to see how it grows fast and to attract more investors. There are rules and regulation that governs the corporate financial report that is open for inspection by potential investors (Folger, 2011). The audit of these financial reports should disclose the accurate financial state of the company and this should be made known to the stakeholders of the company. The stakeholders of a company play an important role in progress of the business and the going concern of the company (Sterling, 2002). The company of Enron did not manage its debts and therefore looked for means of hiding the truth from its stakeholders so as to continue making profit.
The aim of a business is to make profit and be able to pay the debts of the creditors and also attract investors who are interested in the business. Most investor relay on the financial statement to determine whether to invest or not to invest (Folger, 2011). The Enron Company was a big company that was famous and successful before its fall. The corporate attracted many investors since they financial report showed how the business was growing at high rate (Bauer, 2009). However the corporate management did not disclose the true and fair view of the financial reports. The financial report of a company should not mislead the shareholders or its members.
Moreover, in the Enron scandal there were some cases in which it showed misconduct of its financial reporting since the corporate did not display true and fair financial accountings to its stakeholders. The corporate used financial fabrication and mark- market accounting to hide its actual debts and real financial situation (Folger, 2011). These reports made the investor believe that the corporate was making profit while it was making losses in real sense. It is also a form of fraud to stakeholders since it cannot meet all its debts and in case of winding up majority of the investors and shareholder would suffer greatly. The Enron scandal was deemed to be great since it had huge debts to settle and its assets could not settle these debts.
Indeed, financial misconduct affects a large group of stakeholder and leaves a great mark that cannot be erased (Sterling, 2002). For example the shareholders of Enron corporate were highly affected and suffered a loss of billions that were not recovered since the corporate went bankrupt and the assets of the business were also false in existence. The investors also suffered greatly from these financial misconduct, they lost their resources. In addition, the employees suffered greatly by losing billions of pension benefits due to the misconduct of financial reports which led to the bankruptcy of the Enron therefore could no longer pay them (Folger, 2011).
The financial statement of a company is very important to the investors, it gives an over view of the stability of the business and its ability to pay debts. The Enron corporate failed to disclose true and fair view financial statements by hiding its real financial reports and the investors were misled and also due to many investments made by the company lead to its bankruptcy (Sterling, 2002). The purpose of accurate financial reports is to help the investors and also the company to know to what extent they should contract or invest in other businesses. It also helps in managing of the company’s debt thus making profit but the Enron was only interested in making a lot of profits that led to their down fall.
Ethics are rules that govern every business and its members on how to conduct their daily roles in the company (Brady, & Dunn, 1995). In other words, the managers of this corporate owe their loyalty to its stakeholders and their interest ought to be the interest of the business (Bauer, 2009). In deontology of the Enron corporate, the management had a duty and obligations to display the true statement of finance and also to operate the business in the interest of the stakeholders and not their interest. As the leaders they ought to make sure that the going concern of the business is kept and the assets of the company are secured. In addition, the duty of the Enron managers was to disclose the true and fair view of financial reports (Bauer, 2009).
On other hand, utilitarian is a form ethic that is used to show the positive side of the organization, for example by disclosing the false statement to stakeholders thus blinding them of the real situation (Folger, 2011). The Enron leaders used different methods to conceal the truth about its debts and faked the profits. They made the business look attractive and therefore more investors invested in the business. At the end, the ethics rules were violated and the leaders had a role to play .Enron had a role to disclose the truth which could have rescued the company (Bauer, 2009). If at the beginning, the company revealed the truth it would not have ended bankrupt and the employees would have secured their jobs. Finally, the company had a duty to disclose the true financial statements and also save the company from falling and the scandals would have been avoided. The companies should put into practice the ethics governing the corporates. Therefore, to prevent any future happenings such as the past frauds in the company, there has been an enhanced regulation as well as oversight in the company (Folger, 2011).
Bauer, A. (2009). The Enron scandal and the Sarbanes-Oxley-Act. München: GRIN Verlag.
Brady, F. N., & Dunn, C. P. (1995). Business meta-ethics: An analysis of two theories. Business Ethics Quarterly, 385-398.
Folger, J. (2011). The Enron collapse: A look back. Investopedia, December 1. Retrieved October 25, 2014, at http://www.investopedia.com/financial-edge/1211/the-enron-collapse-a-look-back.aspx
Sterling, T. F. (2002). The Enron scandal. New York: Nova Science Publishers.