FINANCE

Should the government provide financial assistance to people whose retirement funds were invested in the stock of companies that may have used unethical accounting practices?

Introduction

The study is related to, should government give financial support to the individuals whose funds of retirement were put in in the stocks who used future value accounting like Enron Corporation and Arthur Andersen etc. This is the topic which has got importance for many stake holders as the retirement funds of employees of these companies has got concern about this issue. However, as the decisions of investment are made by the employees for their personal benefit; therefore, the employees should have to face the loss so government should not provide any sort of financial assistance to people.

Discussion

It is important for the government to provide assistance to the people, but it is also necessary to find out what were the reasons behinds it. In the case of retirement funds of people, which were put in in the stocks who used future value accounting. Enron and Arthur Andersen scandals which have impacted various stake holders as the acts or policies that were being implemented or followed by these companies were to get profits from illegitimate means. Moreover, due to this scandal of Enron and Arthur Andersen, the leadership of Enron Corporation was held liable for the acts or policies of the company as due to these the economy got affected.

Scandal

The founder that is Ken Lay, the CEO that is Jeffrey Skilling and the CFO that is Andy Fastow cam to know that the Enron Corporation was not making profits; so what the Enron Corporation did is that they implemented the “future value accounting” with the approval of Arthur Andersen. The future value accounting is the accounting technique which is used to predict the profit of future that the Enron Corporation will be going to make and list it as part of their profit of the future to the share holders of Enron Corporation (Grey, 2009).

The use of creative accounting take to Fastow to create “outside companies” that were directly involved in hiding the losses of Enron Corporation that the company is making; as Enron Corporation announced large numbers to Wall Street, people started to take an interest in the Enron Corporation and began to buy shares of the Enron. The company also expectant that the employees to buy the shares of the company, and the share price of Enron Corporation was on the rise that is it went to $ 90. The trend of stocks of Enron Corporation was, so enormous in the organization; they had a stock ticker running all the way through the organization, thus, employee could have track of shares of Enron Corporation.

Example of a financing package of Enron, Arthur Andersen

The aim is to allow Enron, Arthur Andersen to borrow money without appearing in its accounts. The transaction involves three parties: Enron, Arthur Andersen, an Enron subsidiary offshore and a bank that is bank A; all are accomplices of the ...