Accounting ethics

Accounting ethics

Introduction

It is known that Enron went bankrupt around ten years ago and disappeared from corporate world, but ethical standards affected by Enron case are not forgettable. The fame Enron earned in the world during 16 years of struggle and established its asset value from USD 10 billion to USD 65 billion, took less than a month to go bankrupt (Mclean & Elkind, 2004).

The company who was once ranked 7th largest company in fortune 500 and also ranked 6th among largest energy businesses in the world. In December 2001, Enron filed for bankruptcy protection in the biggest bankruptcy case in United States at that time (Jennings, 2009). In November 2001, Enron's stock was at its lowest price of USD 1, which has been traded for USD 90 in good days of the company. This condition of Enron brought disaster to investors and employees of the company (Skilling V. United States, 2010). As a result to bankruptcy of Enron, thousands of its employees lost their pensions and jobs, the Enron bankruptcy also affected investors as they lost billions of dollars invested in Enron.

This paper aims on accounting ethics of Enron and identify the issues related to the business.

Discussion

Enron was founded in 1985 as interstate pipeline company, they also been a power supplier to state utilities. The business started with merger of Houston Natural Gas and InterNorth based in Omaha. Business operations of Enron grew rapidly and in short span of 20 years Enron became world's largest trader of energy. Enron awarded with various praiseworthy titles at the end of twentieth century such as “the world's most admired corporations”, “one of the world's leading electricity, natural gas, and communications companies”, and so on (Skilling v. United States, 2010).

Due to increased competition in energy sector, energy decided to diversify its operation and invest internationally to sustain the market position of the business. In fact, the activities undertaken by Enron led to incur losses rather than profits. The incursion of Enron in broadband and fiber optics market during 1999 was actually a wrong decision that led business to incur huge losses again. During this time span Enron incurred with huge losses and went into financial distress. It is also a fact that Enron did not disclose its losses until end of 2001. On the other hand Enron attained extraordinary bottom line by overstating the business and revenues and by hiding their liabilities. For instance, the revenue disclosed by Enron in 1998, 1999 and 2000 were USD 40, USD 60 and USD 101 billion respectively. Moreover with misstatement of financials of Enron, they never disclosed the risk to its investor. On the other hand, the professional and executives of Enron announced substantial earnings forecast through media and encouraged the investors for investing in the stocks of Enron. In addition to this they also recommended their employees to invest in the stock of company with their pensions. It was also observed when any of the employee of the company having concerns with financials of Enron, ...